RBOB gasoline futures took a big drop late in yesterday’s trading session after a headline the White House released saying it is considering waving all EPA regulations to lower gas prices. This is the same administration that recently reached out to Venezuela and allowed Chevron (NYSE:CVX) to help them produce some of the dirtiest oil on the planet while still fumbling around with U.S. oil leases and slowing down the permitting process for U.S. oil and gas production that happen to be the cleanest producers on the earth. I just hope the environment can take the damage that is being inflicted on it because of Biden’s green energy policies.
A waiver of EPA summertime gas regulations, if it indeed happens, is coming a bit late as most refiners have already done most of the summertime maintenance. Still, the news broke RBOB gas futures hard as the announcement caught some by surprise. It could cause a break in gas prices by 10 to 15 cents as long as the price beak is not met by an uptick in demand. Still, the waver is not bearish for crude nor is it bearish for diesel. The White House, to that point, is weighing an emergency declaration to release diesel from the home heating oil reserve that was created to avert shortages of heating oil for consumers in the Northeast in the winter. Of course, this reserve was created in case we had a cold winter and prices soared due to lack of refining capacity. It was never meant to try to avert a larger shortage of diesel, jet fuel and other products. The reserve, with just about 1.0 million barrels, may only help with spot shortages but may not stop the potential for diesel fuel rationing.
Yet, Biden, despite his failed and feeble attempts to try to control gas prices, says that ultimately his failures are good for you. Biden, as reported by Fox News, said that the country is going through an “incredible transition” away from fossil fuels via the high gas prices being experienced nationwide. He made the statement on gas prices during a joint press conference with Japan Prime Minister Fumio Kishida on Monday. He seemed to admit that his policies were the main cause for skyrocketing prices pointing to the green energy transition that has caused a war in Europe and caused food shortages and pain and potential starvation for poor counties for the supposed greater good. Biden says that, “Here’s the situation. And when it comes to the gas prices, we’re going through an incredible transition that is taking place that, God willing, when it’s over, we’ll be stronger and the world will be stronger and less reliant on fossil fuels when this is over,” Biden said, seeming to justify or praise those sky-high prices Americans face at the pump. So while he may not be able to fill your gas tank or find baby formula, at least you know that in the end, the world will be less reliant on fossil fuels. Besides the way things are going in Biden’s world, we will probably have to see a huge decrease in the human population to make all his green dreams come true. It appears that Biden is working on that as well.
The other explosive market is natural gas. Prices are soaring as LNG exports will be hitting new records and a cold wet spring will increase demand from the agricultural sector. Reuters reported that, “U.S. natural gas futures jumped about 8% to a near 13-year high on Monday as power generators and liquefied natural gas (LNG) export plants consumed more of the fuel. Last week, power and gas prices soared as homes and businesses cranked up their air conditioners to escape a spring heatwave. To keep the lights on, generators burned more gas to produce power. In addition, there is usually less wind when it’s extremely hot. That means generators need to burn even more gas to make up for the lost wind power. Wind produced about 12% of the nation’s power last week, down from as much as 16% in recent weeks, while gas produced about 37%, up from just 33% in recent weeks.
U.S. front-month gas futures for June delivery rose 66.1 cents, or 8.2%, to settle at $8.744 per million British thermal units (mmBtu), the highest since it closed at a 13-year high of $8.783 on May 5. With Monday’s gain, U.S. gas futures were up about 135% since the start of the year as higher global prices kept demand for U.S. LNG exports strong since Russia’s Feb. 24 invasion of Ukraine. Gas was trading around $27 per mmBtu in Europe and $22 in Asia. U.S. futures lag far behind global prices because the United States is the world’s top producer, with all the gas it needs for domestic use while capacity constraints inhibit LNG exports. Data provider Refinitiv said average gas output in the U.S. Lower 48 states climbed to 95.0 billion cubic feet per day (bcfd) so far in May from 94.5 bcfd in April. That compares with a monthly record of 96.1 bcfd in November 2021. Refinitiv projected average U.S. gas demand, including exports, would ease from 89.4 bcfd this week to 88.0 bcfd next week. Those forecasts were lower than the Refinitiv forecast on Friday. The average amount of gas flowing to U.S. LNG export plants has risen to 12.4 bcfd so far in May from 12.2 bcfd in April. It hit a monthly record of 12.9 bcfd in March. The United States can turn about 13.2 bcfd of gas into LNG.
Daily, LNG feed gas were on track to hit a seven-week high of 13.3 bcfd on Monday. Since the United States will not be able to produce much more LNG soon, it worked with allies to divert exports from elsewhere to Europe to help European Union (EU) countries and others break their dependence on Russian gas after Russia invades Ukraine. Russia exported around 7.4 bcfd of gas to Europe on Sunday, down from about 7.5 on Saturday, on the three mainlines into Germany: North Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany), and the Russia-Ukraine-Slovakia-Czech Republic-Germany route. That compares with an average of 11.9 bcfd in May 2021. Gas stockpiles in Northwest Europe – Belgium, France, Germany, and the Netherlands – were about 11% below the five-year (2017-2021) average for this time of year, down from 39% below the five-year norm in mid-March, according to Refinitiv. Storage was currently about 39% of full capacity. That is healthier than U.S. inventories, which were around 15% below their five-year norm, and helped cause European futures on Monday to fall to their lowest since Feb. 22 – two days before Russia invaded Ukraine.
Bottom line, the worst may not be over. Everyone is asking when gas prices will top out. I fully expect that we see at least an intermediate peak next week near the May 30 Memorial Day weekend. While we could rally into the holiday, be on guard for a correction right around then. Long term, we would hope for that break to lock in hedges. When many were talking about so-called ‘peak demand’ and lower for longer we warned that compliancy would lead to an energy crisis. Now we have a reality check. Make sure you contact me so we can help if you are caught in this massive move.