Is it a coincidence that just days after Newsmax reported that the Biden administration asked Germany to delay a ban on Russian oil until the US mid-term elections, that Germany finally dropped its opposition to the ban? Don’t worry, Ukraine can hang in until November. No wonder some people call him Quid-Pro Joe. Oil prices surged on the news that Germany dropped its opposition to the ban, and while Democrats try to blame everything and everybody for rising oil prices, like House Speaker Nancy Pelosi pointing to big oil companies yesterday or Vladimir Putin with the so-called Putin Price hike. The truth is that the American people hold Biden and his anti-fossil fuel agenda partly responsible. So, from Biden’s viewpoint, he was desperate to delay a Russian oil ban because he knows that the ban will increase prices and politically hurt Democrats that are already expected to get smoked in the mid-term elections.
In all fairness to Biden, there was also politics involved from Europe’s side. France wanted to delay its support for a ban until its election was over. Other countries like Germany are fearing that they cannot keep the lights on. Yet, whatever the politics in play, it appears that finally Europe is moving towards a ban after Germany dropped its opposition to the oil ban causing the market to price in a more significant loss of Russian oil. Europe also realizes that the longer it continues to buy Russian oil and gas, the longer Putin can fund his war in Ukraine.
So traders who thought that the worst was behind us when it came to oil and gas prices are in for another rude awakening. Gas and diesel supplies are already below average for this time of year, and this is going to make it worse. They are already reporting tankers with Russian oil are being turned back and Russian oil production is already falling.
Bloomberg News reported his month:
“Russia’s daily average seaborne oil flows are set to jump by some 450,000 barrels from March, reaching a three-year high of 3.67 million barrels a day, according to estimates from market intelligence firm Kpler. At the same time, the nation’s production dropped by more than 900,000 barrels a day, down to levels last seen in early 2021. If Russia is pumping less oil, how is it able to export more? The answer lies in the facilities that process crude into fuels.
“The April hike in exports is largely attributed to lower refinery runs,” said Viktor Katona, head of sour-crude analysis at Kpler. While Russian daily oil production so far in April has been about 8.8% below pre-invasion levels, the amount of crude processed by refineries has slumped by 15.3%, according to data from the Energy Ministry’s CDU-TEK unit seen by Bloomberg. The oil that’s no longer processed by Russian refiners has to go somewhere. Initially, it was put into temporary storage at the oil fields as producers sought new customers. Now it’s being sent for export, resulting in rising shipments of crude grades like the Siberian Light blend from Russia’s Black Sea coast, according to Jay Maroo, the lead crude analyst at Vortexa Ltd."
Grain prices are also back on the rise due in part, as the Wall Street Journal reported:
“Russian forces have riddled Ukrainian fields with mines and destroyed equipment in areas they once occupied, in what returning farmers and the Kyiv government allege is a campaign by Moscow to hobble the country’s agricultural industry. Russia’s invasion already has decimated shipments of corn, wheat and sunflower oil from what was until recently one of the world’s biggest food exporters. Prices have soared, adding to global food-price inflation and heaping misery on developing countries that had been dependent on imports from the region. The extent of damage to some farms, together with port disruption and a shortage of fertilizer, demonstrates how the war’s impact on Ukraine’s agriculture industry could extend well into next year."
As we have stated before, the crack trades being long oil products and short crude has paid off pretty handsomely, and they should continue to work even though they’re getting overextended. Refinery margins have to stay strong to continue to drive oil product production as refineries have been running slower than expected. This is happening, in part, due to maintenance, but also because of stricter regulations on refineries. It’s very clear right now that U.S. refining capacity is stretched to the limit as refineries have closed. Now higher crude prices and shortages that can make diesel fuel is adding the to the global supply woes.
The Energy Information Administration also put out a report that they were concerned that even with increased capital spending in the energy sector, U.S. oil and gas production is not rising as much as expected. This should not be a surprise to the Energy Information Administration we have been warning about this for many years that this would happen. Capital spending in previous years, when many oil companies believed that oil prices would be lower for longer, caused bad planning. Incorrect predictions that global oil demand had peaked and companies looking at the Paris climate accord decided to restrict investment in fossil fuels. Those poor decisions led to the loss of millions of barrels of future production and now the investment that we are seeing is not going to raise production as it did in recent years. It’s only going to replace the decline that we have seen from the previous under-investment. We are on a treadmill and we’re losing. What is making it worse is that we have an administration that has an incoherent energy policy.
Natural gas prices cooled off after the Energy Information Administration reported the second bearish report in a row. Based on expectations, we were lucky enough to predict a more bearish number but the street had a lower number. The EIA showed that working gas in storage was 1,490 Bcf as of Friday, April 22, 2022, according to EIA estimates. This represents a net increase of 40 Bcf from the previous week. Stocks were 406 Bcf less than last year at this time and 305 Bcf below the five-year average of 1,795 Bcf. At 1,490 Bcf, the total working gas is within the five-year historical range.
Make sure that you are still properly hedged. At some point high prices will cure high prices, but we still believe there is significant upside risk. I’ve been hearing from a lot of companies that did not hedge and want to know if it’s too late, The answer is probably no. I’ve also been hearing from a lot of speculative traders who want to get involved and are asking if it is all over . No, we don’t believe so.