Commodity price volatility is exploding after the Fed disappoints. Some markets including the petroleum markets, even after the soft inflation reading, oet confused after an Energy Information Administration (EIA) report that had in data almost improbable asked the late surge of votes by Joe Biden in that last election. Now the American Petroleum Institute (API) accuses Biden’s EPA of exceeding their congressional authority. I guess sort of like when they defied the Constitution and the Supreme Court to give away your tax money to pay for some student loans in an attempt to win votes.
Oil prices try to shake off yesterday’s Fed Statement that suggested that many Americans are not wrong about hating this Biden economy even as the Administration tells them things are so great. The Fed sees that inflation is cutting into most American's pocketbooks and their financial security. The Consumer Price Index number showed inflation rose 3.3% from a year earlier, that was a three-year low, and slowing from April’s 3.4% rate, the Fed seemed to think it was too little too late. The Fed said that they expect core inflation to be 2.8% by year’s end, that was higher than their last inflation forecast of 2.6%. They project that unemployment will stay at its current 4% rate by the end of this year and edge up to 4.2% by the end of 2025. The Fed said that they’ve seen only modest further progress towards their 2% inflation goal in recent months and now they see the Fed funds rate at a median of 5.1% at the end of 2024 It’s just decreased the odds dramatically of the two rate cuts this year and even the one rate cut is now in question by some analysts.
Still my base case is that we will see a rate cut before the election. Most of the bets are on the December cut. That is why my expectation is we will see some more data that will confirm the slowdown in inflation. Today’s producer price that price index could be key in the direction of markets.
After last week’s EIA report, I wrote an article titled “OPEC and Other Oils” which pointed out that the main driver in a surge of demand was in the ‘other oil’ category. Once again that “oil category” is raising eyebrows as the EIA has had weeks of wild swings in oil and demand adjustment numbers and has the market now focused on other oils that include the gasoline additive naphtha and miscellaneous other products includes all finished petroleum products not classified elsewhere, including petrolatum, lube refining byproducts (aromatic extracts and tars), absorption oils, ram-jet fuel, petroleum rocket fuels, synthetic natural gas feedstocks, and specialty oils.
According to Tim Dallinger some of the demand for that could be refiners and oil producers trying to reduce their emissions. The reality is that the swings in the other oil data are unlike anything we’ve ever seen in this category since they’ve been keeping records. After the demand for other oils surged last week, it plunged by 1.5 million barrels a day. In such wild swings and the crude oil supply numbers by the EIA on massive adjustments, it’s possible that the EIA is just having a very difficult time identifying what type of oil is going into storage and into refineries and that’s just throwing it into the other oil category until they figure out what the heck they’re dealing with. In this week’s report, the Energy Information Administration had to adjust its crude oil number downward by 1.51 million barrels a day.
Last week they had to increase their oil adjustment by 1.3 to 6,000,000 barrels a day which means a downward adjustment of supplies of 2.477 million barrels a day which is having a major impact and the market is questioning whether this report really reflects the real state of crude oil supplies in this country. In other words, it’s very possible that some of the supply that is being counted as barrels of oil is being misidentified and maybe giving the market a false sense of security as to where our supply situation is.
There is also a question as to why the US imported the most oil last week since 2018. The EIA said that the US crude oil imports averaged 8.3 million barrels per day last week, up by a whopping 1.2 million barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 7.2 million barrels per day, up an incredible 11.4% more than the same four-week period last year. Even after all the adjustments, the EIA says that supply in every major category is below average. The EIA says that, “US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.7 million barrels from the previous week. At 459.7 million barrels, US crude oil inventories are about 4% below the five-year average for this time of year.
Total motor gasoline inventories increased by 2.6 million barrels from last week and are slightly below the five-year average for this time of year. Distillate fuel inventories increased by 0.9 million barrels last week and are about 7% below the five-year average for this time of year.
Demand over the last four-week period averaged 19.8 million barrels a day, down by 0.8% from the same period last year. Over the past four weeks, motor gasoline product supplied averaged 9.1 million barrels a day, down by 1.3% from the same period last year. Distillate fuel product supplied averaged 3.7 million barrels a day over the past four weeks, down by 3.5% from the same period last year. Jet fuel product supplied was up 11% compared with the same four-week period last year.
While gasoline prices have come down in recent weeks, the Biden administration is still feeling the heat from Americans who are not only being hit with much higher gasoline prices over the last few years but also because of overall inflation and now the industry is standing up. The Biden administration with their restrictive policies will only serve to make America less competitive economically in the future when it comes to energy policy.
Reuters is reporting that “The nation’s largest oil trade group, which includes Exxon Mobil (NYSE:XOM), and Chevron (NYSE:CVX) will file a federal lawsuit on Thursday seeking to block the Biden administration’s efforts to reduce planet-warming emissions from cars and light trucks and encourage electric vehicle manufacturing, the group said. The US Environmental Protection Agency issued new tailpipe emission rules in March that will force the nation’s automakers to produce and sell more electric vehicles to meet the new standards. Under the rule, the administration projects up to 56% of all car sales will be electric between 2030 and 2032.
The American Petroleum Institute (API) says the EPA has exceeded its congressional authority with a regulation that will eliminate most new gas cars and traditional hybrids from the US market in less than a decade. “Today, we are taking action to protect American consumers, US manufacturing workers and our nation’s hard-won energy security from this intrusive government mandate,” API Senior Vice President and General Counsel Ryan Meyers said. In the final rule, Biden slashed its target for electric vehicle adoption amid auto worker backlash, but the watering down of the measure did little to pacify an oil industry that needs gas-powered cars to survive. For both Biden and his Republican rival, Donald Trump, the road to the White House goes through industrial states Michigan, Wisconsin and Pennsylvania where workers fear that the EV transition threatens jobs.”
Prices have recovered their OPEC plus taper tantrum and we’re getting more commitments from OPEC cheaters that they will make compensation cuts that might make any increase in production negligible.
Reuter reported that, “Iraq’s oil ministry said on Wednesday it is fully committed to compensating for any crude oil overproduction in 2024, referencing estimates by secondary sources of overproduction by 203,000 barrels in May above levels agreed with OPEC+. The ministry “is committed to the production level required in the agreement, of 4 million barrels per day, for June and the subsequent months, in addition to compensating the surplus production since the beginning of this year throughout the compensation period, which will run until September 2025,” it said in a statement.
The natural gas recovery seems to have stalled as supplies seem to be getting caught up with demand. Above-average heat has powered the move but now we await the report from EIA.