Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

The Energy Report: Crunch and Munch Time

Published 07/21/2023, 03:26 PM
CL
-
NG
-

You can only delay the inevitable for so long. Global energy policy based on a wing and a pray and a green energy shortsighted agenda is leading the world into an energy supply crunch. The oil market is starting to slowly price in a looming supply crunch as it is on track for its 4th week of price gains. Global supplies are starting to tighten and that could accelerate dramatically in the coming weeks. Increased war risk could also impact prices it’s Russia bombarded Ukrainian ports after they pulled out of the Black Sea grain deal Ukraine also is threatening to retaliate making the grain corridor riskier and putting more upside risk to the price of oil. Even without the war risk, major reporting agencies like the Energy Information Administration are now acknowledging the fact that the global market is going to be undersupplied in the second half of the year. Asia is aggressively taking steps to beef up supplies by importing record amounts of oil ahead of the great tightening and the growing risk of a price surge. And just when you thought it was safe to go to the gas pump. Prices are back on the rise, but it is diesel where you might see another major price spike soon.

If the economy in China is so bad, then why are they importing so much oil? I keep asking. Oil Price reported what we have already told you. In the first half of 2023, China imported 2.13 million barrels per day of Russian crude oil, making Russia its single biggest supplier. In June, China once again imported record-breaking levels of Russian crude, a 44% increase compared to the same month in 2022. Total Chinese oil imports are also soaring, with the country importing the second-highest monthly import figure on record in June.

Reuters also reported that:

"Asian refiners have booked near-record volumes of U.S. crude to be shipped in August, replacing Middle Eastern oil, as competitive prices and ample supplies attracted heavy buying, according to trade sources. The jump in U.S. imports comes on the back of strong Chinese demand for Brazilian oil in the third quarter as Asia boosts its light oil purchases from the Americas, reducing demand for similar quality grades from the United Arab Emirates. About 1.5 million to 1.9 million barrels per day (bpd) of U.S. crude, mostly West Texas Intermediate (WTI) Midland, will be bound for Asia next month, traders said. That would be shy of the record 2.2 million bpd loaded in April, according to ship tracking data from Kepler. The large flow of U.S. crude to Asia is aided by steep discounts for WTI against Middle East benchmark Dubai, which make hauling oil from the U.S. more attractive.”

Record heat and lack of rain have caused even more volatility in the grain markets and continue to be an upside risk for gasoline and diesel. The global shortage and diesel prices basically have been ignored because Mother Nature bailed out the market with the warmer-than-expected winter. Yet even with record releases from global strategic reserves and the Biden administration turning a blind eye to oil exports from countries that are under sanctions the diesel supply situation still seems to be a major risk to the economy going forward.

John Kemp at Reuters pointed out that “U.S. inventories of diesel and other distillate fuel oils have failed to replenish significantly despite a downturn in manufacturing and freight activity that has so far lasted eight months."

Distillate fuel oil inventories amounted to just 118 million barrels on July 14, according to data from the U.S. Energy Information Administration, stocks were 21 million barrels (-15% or -1.15 standard deviations) below the prior 10-year seasonal average and the deficit had narrowed only modestly from 27 million barrels (-19% or -1.65 standard deviations) a year ago. Distillate stocks have increased slightly from last year when they were just 113 million barrels, but otherwise they are at the lowest level for the time of year since 2004.

Kemp Says that:

“There is not much scope for rebuilding depleted diesel stocks by running refineries harder, shifting them away from producing gasoline, or drawing down diesel inventories in other regions of the world: U.S. refineries were running at 94.3% of their maximum capacity in the week ended July 14, which was 2.2 percentage points above the 10-year average and the highest rate since 2015. U.S. gasoline stocks are also depleted at almost 13 million barrels (-5% or -1.31 standard deviations) below the prior 10-year seasonal average, making it difficult to boost diesel yields at their expense.

In Europe, distillate inventories are 30 million barrels (-7% or -0.90 standard deviations) below the seasonal average while the deficit in Singapore is 3 million barrels (-27% or -2.52 standard deviations). U.S. distillate consumption and inventories are both closely geared to the business cycle since more than three-quarters of distillate fuel oil is consumed by trucking firms, railroads, and manufacturers."

Led to a bullish natural gas report yesterday. Working gas in storage was 2,971 Bcf as of Friday, July 14, 2023, according to EIA estimates. This represents a net increase of 41 Bcf from the previous week. Stocks were 575 Bcf higher than last year at this time and 360 Bcf above the five-year average of 2,611 Bcf. At 2,971 Bcf, total working gas is within the five-year historical range.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.