Global leaders are going crazy for you as they propose crazy solutions to the energy crisis they helped create. Oil prices continue to soar as world leaders look to make the problem worse by forming buyer cartels that will include price caps that will lead to shortages and sanctions on buyers of Russian oil like India and China. Sanctions on Russian oil and gas buyers might be a noble idea, but could open up a diplomatic cup of worms and not make oil prices go any lower but only higher.
In the meantime, the same group that sold the world a bill of goods that we could restrict U.S. oil and gas production, kill pipelines and switch easily to alternative fuels without any ramifications is now saying a buyer cartel will send the right message to Russia and our oil-producing advisories. You know, like Russia and Saudi Arabia, that we now are begging to raise oil production.
Yet those anti-fossil fuel policies have helped continue to support Russia’s war in Ukraine, especially in the early days of the war when things were not going so well for Russia. Russian oil and gas revenues went through the roof. The Biden administration said that the sanction they would impose would cripple the Russian economy and pointed to the Russian ruble’s demise as evidence the sanctions were working. Remember the sanctions that were designed to deter the Russian invasion of Ukraine before they were later never intended to deter Russia and Putin.
By the way, have you looked at the Russian ruble lately? It is soaring. Russia says that their pay for Russian gas in rubles or else the campaign is working, and it expects because the buyers are complying that, they will not have to cut any more European gas sales.
That may be good news for Europe because of a small explosion and fire at the Country’s largest LNG exporter. Reuters reports that Freeport LNG, operator of one of the largest U.S. export plants producing liquefied natural gas (LNG), will shut for at least three weeks following an explosion at its Texas Gulf Coast facility, raising the risk of shortages, especially in Europe. Freeport LNG, which provides around 20% of U.S. LNG processing, disclosed the shutdown late on Wednesday after appraising damage to the massive facility. The news sent natural gas prices sharply lower as supply that would have been exported will get backed up. Prices should bounce back when it reopens but maybe not as fast because we will have three weeks of extra supply.
We do get the EIA Natural Gas storage report today at 9:30 CDT time. Reuters – U.S. utilities added a smaller-than-normal 96 billion cubic feet (bcf) of natural gas to storage as power generators used more fuel to keep air conditioners humming during last week’s heat, a Reuters poll showed on Wednesday. That compares with a build of 98 bcf during the same week a year ago and a five-year (2017-2021) average injection of 100 bcf. In the prior week, utilities added 90 bcf of gas to storage.
Oil hit another new high on the move as U.S. refiners ran a whole bunch of oil and the fact that U.S. gasoline demand held up well over the Memorial Day weekend even as drivers must suffer through record-high prices. The Energy Information Administration (EIA) reported that total commercial petroleum stocks increased by 11 million barrels. Total domestic demand increased 0.7Mbpd to above 20Mbpd for the first time in 11 weeks. Petroleum export demand fell 2.3 Mbpd, and total demand fell by 1.6 Mbpd.
Crude oil stocks increased by two million barrels, which would have never happened unless we had 7.3 million barrels released from the Strategic Petroleum Reserve. We saw crude oil supplies in Cushing, OK increase by 400,000 barrels. The key was that crude oil inputs ensured refineries hit the highest level since January of 2020. Total gasoline inventories also fell but only slightly by 800,000 barrels. In pad one, we saw RBOB stocks increase by 2.3 million barrels. Gasoline demand increased last week by 116,000 barrels a day, showing that the consumers are still hanging in there with these higher gasoline prices.
Distillate inventories also have a sizable 3.2 million barrel build this week. This came as distillate demand fell by 471,000 barrels a day and demand fell by 152,000 barrels a day, and that may be why we’re seeing some reluctance to push diesel higher from these levels. It’s not like we’re really backing off at this point, but at the same time, we’re not driving higher like we were before. We’re still in a very solid uptrend, but we are quite overbought.
Probably the key thing today for the oil market is talk of another China shut down. There is a report that one Shanghai province is going to shut down and that China is looking at other provinces for potential signs of more COVID-19. This would be a reversal of the narrative that has driven oil prices higher that China was getting ready to reopen. We have to keep an eye on this because if there is a shutdown in China, then we could see the market pullback. Yet, at the same time, we’re seeing reports that China is really upping their imports of crude, mainly from Russia. Gee, I wonder if Russia is making China pay for that oil in rubles.