A disjointed US energy policy is restraining US oil and gas output that should be much higher than it is. Ill-advised releases from the strategic petroleum reserves, laughable price caps, and a slew of nonsense regulations have hampered the US oil and gas industry and have hurt the US economy. You can say that the record US oil and gas production by the EIA is proof that the Biden administration has not restrained US oil and gas output but if you look at the US oil and gas rig count and talk to people in the oil and gas industry, you know that is incorrect. Rig counts don’t lie, and energy industry leaders are left scratching their heads as to a regulatory environment that is based on optics and politics and has little to do with reducing carbon emissions.
The reality is that the rig count in the United States continues to fall despite higher prices. While oil prices are up 12% year to date, the US oil rig count is down by more than 18%, and the drilled but uncompleted well count is down much more than that. Friday the Baker Hughes rig count showed that the total overall rig count fell from 641 rigs to 630 last week. The oil rig count fell from 515 rigs to 507 horizontally. Shale rigs in the Permian basin fell by 4 to 300, the lowest level since March 2022. What that shows is shale oil production in the United States is faltering. That is why OPEC and Russia feel confident that they can maintain their production cuts because they know that the US won’t respond to market conditions because of a dysfunctional regulatory environment.
Harold Hamm founder of Continental Resources (NYSE:CLR) Inc. as reported by Bloomberg explained how this administration helped hamper oil and gas production. He said,
“When the federal leases were pulled off the table with this latest administration, it took a full year just to modify everybody’s drilling plans,”
Hamm said.
“Everything you planned that you’re going to do, if you can’t get permits, you have to go to plan B, and plan B is not a good plan.”
Pipeline operators also shelved projects. Not only is it almost impossible to get approval, but the uncertainty surrounding federal leases made it too much of a risk to try to move forward. Besides the Biden administration, the politically motivated cancelation of the Keystone XL was a blow to the credibility of the US government.
Treasury Secretary Yellen, who famously in 2021 said she would prod multilateral development banks to rein in their lending for fossil fuels, is at it again. Earlier this year Secretary Janet Yellen said, “the price cap on Russian oil imposed by Western countries in December so far appeared to be achieving its goals of keeping Russian oil on the market while limiting Russia’s revenues.” Yet we know now that it has failed. The Financial Times reports that, “Russia has succeeded in avoiding G7 sanctions on most of its oil exports, a shift in trade flows that will boost the Kremlin’s revenues as crude rises towards $100 a barrel. Almost three-quarters of all seaborne Russian crude flows traveled without Western insurance in August, a lever used to enforce the G7’s $60-a-barrel oil price cap, according to an analysis of shipping and insurance records by the Financial Times.
As we have written many times before, you show me a price cap, and I’ll show you a shortage. Based on the futures curve in oil and diesel the market is already short, and players are scrambling to secure supply. In the US, commercial crude oil inventories are about 3% below the five-year average for this time of year. Yet if you subtract the oil from the SPR, it’s near historic lows for this time of year. Gasoline inventories are 3% below the five-year average for this time of year and distillates are 14% below average. Demand on the other hand is up 6.8% from a year ago. That’s keeping gas and diesel prices high. AAA reports that regular unleaded increased to $3.949 a gallon and diesel to $4.574 a gallon.
Globally we cannot afford to lose any refining capacity. Now there are reports of an explosion at Iran’s Bandar Abbas refinery. The refinery stats show production of gasoline: 46,000 barrels per day/ Kerosene and Jet Fuel: 37,000 barrels per day/ Furnace Fuel: 67,000 barrels per day/ Gas Oil: 70,000 barrels per day. We will have to wait to see how bad the damage is.
The FTE reports that “Europe will have to rely on US fossil fuels for decades to come as it races to diversify from Russian natural gas and scale up its renewables sector to boost energy security, the EU’s top energy official has said. Ditte Juul Jørgensen told the Financial Times that the EU had “the instruments that we need” to endure another winter energy crisis in the aftermath of the Russia-Ukraine war. These included conservation and more renewable energy. But she said the bloc’s reliance on exports of US liquefied natural gas would persist.” So why are natural gas stoves and pipelines here? So we can send more gas to Europe?
WTI looks to target 9450 and we could hit turbulence. Underinvestment in fossil fuels is being unmasked as a key driver of oil tightness. Breaks today should be bought on both oil and products.
Natural gas is pulling back a bit but the energy storage story is gaining momentum. Price reports that, “U.S. developers added 5,597-megawatt hours (MWh) of energy storage installations in the second quarter of 2023, setting a new quarterly record and putting the American energy storage market on track for a record year in 2023, a new report by Wood Mackenzie and the American Clean Power Association (ACP) showed on Monday. In the second quarter, grid-scale energy storage additions led the way with a record-breaking 5,109 MWh, which beat the previous record in the grid-scale segment from Q4 2021 by 5%, according to WoodMac and ACP.