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Crude oil prices started the first day of official summer with an impressive breaking out to the upside as the market started to realize the unlikelihood of the return of unsanctioned Iranian barrels of oil back on the world market. The re-open trade has people getting back in their cars getting ready to travel and that is causing the demand for gasoline, diesel, and jet fuel to skyrocket. Today oil prices are pulling back a bit as we await weekly inventory data from the American Petroleum Institute and that should show another big drop in U.S. crude oil supply which could exceed 5.0 million barrels this week. The trend of falling crude supplies could accelerate in the coming weeks as demand is growing faster than production. There are also reports that Russia is getting antsy to raise oil production.

Reuters reports that, "OPEC+ is discussing a further easing of oil output cuts from August as oil prices rise on-demand recovery, but no decision had been taken yet on the exact volume to bring back to the market, two OPEC+ sources said on Tuesday. The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, is returning 2.1 million barrels per day (bpd) to the market from May through July as part of a plan to gradually unwind last year's record oil output curbs. OPEC+ meets next on July 1. "It is highly possible to increase gradually from August," said one of the sources, adding that no final decision had been made and the exact volumes are yet to be agreed on. The talks mean that OPEC and Russia are likely to find common ground again on oil production policy. Moscow has been insisting on raising output further to avoid price spikes, while key OPEC producers, such as Saudi Arabia, have given no signals on the next step until now.

Yet OPEC plus does need to raise production. The market is screaming for more oil supply and it needs it now. In fact, OPEC just discussing a modest increase is probably more bullish than it is bearish because OPEC plus is not going to add as much oil as the market wants or needs. 

Oil also benefited from a risk-on attitude as a stock market bounced back big on the re-open trade and Fed officials continued to suggest that they would stay accommodative despite worries about inflation.

The Wall Street Journal reported that "Federal Reserve Chairman Jerome Powell said Monday that job growth should pick up in the coming months and temporary inflation pressures should ease as the economy continues to recover from the effects of the pandemic. “The economy has shown sustained improvement,” Mr. Powell said in testimony prepared for delivery Tuesday on Capitol Hill, noting progress on vaccinations and vast stimulus efforts by Congress and the Fed.

The Wall Street Journal also reported that Federal Reserve Bank of New York leader John Williams said he isn’t ready for the U.S. central bank to dial back the support it is giving the economy amid uncertainty about the recovery from the pandemic. “It’s clear that the economy is improving at a rapid rate, and the medium-term outlook is very good,” Mr. Williams said in a virtual appearance Monday. “But the data and conditions have not progressed enough for the Federal Open Market Committee to shift its monetary policy stance of strong support for the economic recovery,” he said.

So now oil prices do not have to face the possibility of the Fed raising rates in two years and can focus on the fact that we're seeing the economy re-open at a dramatic clip and the oil demand is going up while investment is going down. The Biden administration, in their infrastructure talks, is proudly saying that they will refuse to allow a gasoline tax to help pay for their structure plans. It's kind of funny when you want to transition off fossil fuels, make policies that raise the cost of oil and gasoline and then try to say that you're trying to help the average American by keeping their gasoline prices low. This is hypocrisy at its best. Why not go full in and raise the tax on gasoline, at least it would be in keeping with your other policies that continue to put upward pressure on oil and gasoline prices.