There is no relief at the gas pump yet. AAA reported yet another record high price for gasoline and diesel Fuel. AAA says that Regular Unleaded gas is at $4.919 a gallon and diesel at $5.684. Still, the RBOB wholesale gasoline futures are suggesting that while there may be more pain ahead, there are signs that perhaps prices may level out soon.
Not only should we see reduced demand after the Memorial Day holiday, but the Biden administration is also likely to raise ethanol blending mandates for 2021 above the figure it proposed in December to align with actual U.S. consumption levels.
Yet don’t look for a major break in gas. Maybe a dime or so because crude oil will remain strong. Even a 7.3 million barrel release from the Strategic Petroleum Reserve failed to calm markets as it is lowering US inventories, making us vulnerable to price spikes if we get a disruption. What is even crazier is that even with that massive release of oil, we still may get a 3-million-barrel draw in US inventories as refiners are maxing out, and exports should be approaching record highs. The world just loves that US SPR oil. I’m also expecting a 3 million drawdown in both gasoline and distillate inventories this week.
Reports that Libya’s largest oil field that was back online only lasted a short period after gunmen stormed the field. The 300,000 b/d capacity El Sharara field had restarted production at around 180,000 b/d after having been shut by protests for more than six weeks. Output resumed late on 4 June, according to sources in the country. Yet yesterday, it was shut again as a gunman rushed the field. They stayed online longer than I thought they would.
Renewed strength in the dollar may act as a headwind if you are a bear in oil grasping for straws, but the overall supply-demand situation is so tight that it is going to take a major drop in demand to stop the upward trajectory of oil and products.
The big winners in the runup in crude oil have been Saudi Arabia and Russia. Reuters reported that Saudi Arabia’s gross domestic product grew 9.9% in the first quarter, the fastest in a decade and more than a flash estimate last month of 9.6%, official data showed on Tuesday. It was the fastest expansion since the third quarter of 2011 with the increase in oil production a key factor, said Monica Malik, chief economist at Abu Dhabi Commercial Bank. The General Authority for Statistics added:
“This growth is due to the high increase in oil activities by 20.3%,”
Earlier this week, it was reported that Russia’s oil revenues had jumped by over 50% despite sanctions. Nearly $6.4 billion is in the coffers of Russian President Vladimir Putin’s war machine, so if you were Joe Biden, what would you do to compete with Saudi Arabia and Russia. Ah, that’s the ticket! Lift sanctions on foreign solar panels. Timothy Puko at the Wall Street Journal reported that the White House is preparing not to impose any new tariffs on solar imports for two years.
Puko writes the decision would be a win for US solar developers and utilities, which are highly dependent on imported solar panels, and a loss for US manufacturers trying to build up a domestic solar supply chain. The decision, they say, comes in the wake of the Commerce Department’s decision to investigate whether Chinese solar producers are illegally circumventing solar tariffs by routing operations through four countries in Southeast Asia those countries are Cambodia, Thailand, Vietnam, and Malaysia.
So what you are doing is a charade that will see Chinese solar panels be exported to these countries so they can be sent to the US and put US manufacturers out of business, but at the same time, another policy that will put money into our adversary’s pockets. While Biden’s approval ratings here in the United States may be falling, I bet in China they’re rising.
The natural gas supply squeeze is becoming more apparent with heat warnings in Texas and demand for electricity demand hitting a record high. This comes as the Energy Information Administration reported that this winter led to the largest natural gas storage withdrawal in at least four years.
The EIA says that net withdrawals of natural gas from U.S. storage totaled 2,264 billion cubic feet (Bcf) this winter November through March. This amount is the most natural gas withdrawn from storage since the winter of 2017–18 and 10% more than the previous five-year (2016–17 to 2021–22) average, according to our recently released Natural Gas Monthly, which includes data through March 2022.
Typically, more natural gas is withdrawn from storage in the United States than is injected during the winter heating season as demand (including consumption and exports) exceeds supply (including production and imports). During the heating season, natural gas must be drawn from storage to meet this excess of demand over supply. Working U.S. natural gas storage levels at the end of March 2022 were 1,401 Bcf, which is 11 Bcf higher than March 2018.
On average, demand for natural gas in the United States exceeded supply by 14.9 billion cubic feet per day (Bcf/d) this past winter. Average U.S. supply and demand for natural gas both set record highs this past winter, with supply at 104.3 Bcf/d and demand at 119.2 Bcf/d. U.S. natural gas supply and demand had been further out of balance during the winter of 2017–18, resulting in more natural gas being withdrawn from storage that winter.
Without a lot of new news to drive us, the market will focus a bit on the dollar, and the stock market strength in the dollar and weakness in the stock market could bring the market down just a bit. Yet after the close, we’re going to have to face up to the realities of the American Petroleum Institute supply report that should keep the bulls in charge.