One of the reasons given for oil’s underwhelming performance as of late is the talk of a slowdown in the Chinese economy after the post-covid pop. And while we have seen mixed data out of China, to the point where China has cut rates and talked of more stimulus, China’s oil demand is not really fitting the slow-down narrative.
Just today Reuters reported that China’s oil refinery throughput in May rose 15.4% from a year earlier. May’s figures represented the second-highest monthly total on record, exceeded only by 63.3 million metric tons in March this year. Total refinery throughput in the world’s second-largest oil consumer was 62.0 million metric tons last month, data from the National Bureau of Statistics (NBS) showed.
This came one day after Tsvetana Paraskova of Oil Price reported that China boosted their output quota by 20% from a year earlier. China issued 62.28 million tons of import quotas to private refiners – those that need government authorization to import crude unlike state-held oil refining giants – in the latest batch, Reuters reported on Wednesday. With the latest batch for 2023, the total crude import allowances for Chinese refiners for the first half of the year have risen to 194.1 million tons. This is 20% higher than the crude import quotas allocated in the first half of 2022.
This comes against a backdrop of strong demand in the US that should stay strong after the Federal Reserve took a pause on its rate hiking cycles and seems to be backing off the predictions of a recession later this year. While Fed Chairman Jerome Powell did suggest that it’s possible that we could get more rate hikes this year, he also expressed optimism that the Fed could achieve a soft landing while still getting inflation under control. Powell said he is worried about core inflation which is still stubborn even as headline inflation has come down. They have 2 rate hikes penciled in, so the market will be watching movement in the core inflation rate above all else, which measures those people that exclude food and energy or do not eat or use energy.
Those that do use energy still used a lot of it last week. Even as we saw the Energy Information Administration report a big build in crude and product supply, big adjustments to the weekly data as well as some catch-up from the massive draw a few weeks ago really averages things out.
The EIA reported that U.S. commercial crude oil inventories excluding those in the Strategic Petroleum Reserve (SPR) increased by 7.9 million barrels from the previous week. At 467.1 million barrels, crude oil inventories are at the five-year average for this time of year. Yet being at the five-year average means you ignore the SPR that saw another 1.9 million barrels released putting supplies 159.9 million barrels below a year ago, all of which will have to be replaced. The Biden team announced they bought back 12 million barrels, some done and some yet to be done, but they still have a long way to go.
Gasoline demand, while down week over week was still impressive at 9.193 million barrels. Product demand over the last four-week period averaged 19.9 million barrels a day, up by 0.8% from the same period last year. Over the past four weeks, motor gasoline products supplied averaged 9.2 million barrels a day, up by 2.4% from the same period last year. Distillate fuel product supplied averaged 3.8 million barrels a day over the past four weeks, up by 0.8% from the same period last year. Jet fuel product supplied was down 0.7% compared to last year’s four-week period.
Today the oil market is shaking off supply increase and the Fed dot plot. It is shaking off the reports of the US engaging with Iran as well. And why not! The US has not been enforcing sanctions on Iran anyway. Javier Blass at Bloomberg pointed out that, “Despite US sanctions and promises by top American diplomats, Iranian oil production continues to surge higher and higher, reaching almost 2.9m b/d in May, according to @IEA data. That’s the highest in about 4½ years.
Yesterday the July options expiration helped add to the volatility and after holding key support should mount a rally as crude supply draws should be coming.
If you drive a hybrid, could you be having an identity crisis? Dan Molinski at the Wall Street Journal says Yes! And drivers of a typical, and popular plug-in-hybrid EV (which the EIA labels generally as an “EV”) use the electricity mode about 20% to 30% of the time, according to the DC-based Int’l Council on Clean Transportation. So a car that uses gasoline 75% of the time is an “EV.”
Natural gas is bringing to focus on more green energy madness. Not only are we seeing signs that US gas is bolting ahead of the EIA report, we are also seeing signs that prices are spiking in Europe. Today the Weekly storage report is calling for a +90 Bcf injection for the implied flow storage change. The EIA reported a net injection of +94 bcf last year, and the five-year average is an injection of +84 bcf.
In Europe, the mission accomplished flag must come down in regard to the energy crisis. Price caps and record Russian exports can hide the fact that EU natural gas prices have soared up 95% over the last. How to respond?
Bloomberg reports that, “The Dutch government is set to permanently shut down the Groningen gas field in October, a move that may limit Europe’s supply buffer as it heads into the next winter. The closure will take effect from October 1, people familiar with the matter said, asking not to be identified as the plans are still private. The official decision on the field will be taken during a cabinet meeting later this month, said a spokesperson for the Dutch State Secretary for Mining.
Zero Hedge reported that, “We have been writing about the ESG scam on this site since it caught fire years ago, taking with it trillions of dollars of investment capital. The latest “reality check” for ESG investing and the inane “scores” that companies receive comes courtesy of the Free Beacon, who this week profiled how tobacco companies – yes tobacco companies – are blowing away EV-maker Tesla (NASDAQ:TSLA) in their ESG rating. The report noted that this month S&P assigned Tesla “a lower environmental, social, and governance score than Philip Morris International (NYSE:PM), the maker of Marlboro cigarettes.”