Are inaccurate reports of global oil, supply and demand starting to catch up to the global oil market? Oil prices have been creeping higher as the market structure has priced in supply tightness based on the previous forecast by the International Energy Agency and the Energy Information Administration (EIA) should be happening. Even today the market seems underwhelmed with China’s 5% growth target and its promised stimulus. The reality is that Chinese oil demand has been much better than previously reported as has been US oil demand despite the naysaying by many.
The EIA reported that despite talk of sup-par Chinese demand, we saw Chinese refinery runs hit a record high. The EIA says that China averaged 14.8 million barrels per day (b/d) in 2023, an all-time high.
In the US, the EIA also said that US domestic fuel consumption reached 20.23 million barrels a day last year, the highest level since 2019. Some of that Chinese record refining was done with the US Strategic Petroleum Reserve and Russian oil. The key thing is that these reporting agencies have consistently underestimated demand and overestimated supplies. The problem with these bad predictions is that it caused a false sense of security in the oil market. It also led to a lack of investment in oil and gas and is starting to become a major issue because on the uncertainty surrounding the data as well as the uncertainty surrounding energy policy from the Biden administration.
While oil seems to be disappointed with the Chinese news as far as their growth targets, the reality is it’s very, very bullish. We expect that the demand in the United States and the rest of the world will exceed expectations and not only will we see record demand for oil we’re going to see a market that’s going to be undersupplied in the second half of the year. More and more the futures spread seems to be suggesting the same thing.
For many years I have been openly critical of the Energy Information Administration and their lack of focus about energy security and their constant shilling for the green energy lobby. Big green money has done significant damage to the supply side of the market. Once again we see signs that this green energy dream is based on moving money and controlling people rather than it is on saving the environment. As we have stated before and now is getting a lot of press, is the fact that electric cars that the Biden administration has been trying to force down the throats of Americans are not any cleaner and do more damage to the environment than that good old-fashioned internal combustion engine. Of course, we’ve known this for many, many years and we continued to talk about it. But we’ve got to stop the madness and come back to reality. The reason why that is so critical is that the average person gets hurt by these silly anti-energy policies.
Now the other crazy thing that the Biden administration did was release oil from the Strategic Petroleum Reserve. They put no restrictions on who could buy our SPR oil. China of course became one of the biggest buyers of US Strategic Petroleum Reserve oil. Now a classic government attempt to shut the barn door after the horse has escaped, they are now trying to ban China from buying oil from the Strategic Petroleum Reserve. Good luck with that.
Reuters reported that, “A measure in the U.S. funding legislation unveiled by congressional leaders on Sunday would block China from buying oil from the Strategic Petroleum Reserve. The desire for a hard line on China is one of the few truly bipartisan sentiments in the deeply divided U.S. Congress, and lawmakers have introduced dozens of bills seeking to address competition with China’s government. The issue of SPR sales to China heated up after President Joe Biden, a Democrat, announced in 2022 a sale of 180 million barrels of SPR oil to tame gasoline prices that spiked after Russia invaded Ukraine. Maybe they should ask for the oil back?
The markets are getting a little bit of a pullback too on concerns about what the Federal Reserve speakers will talk about. The speakers could push the market down a little bit but if they sound a bit dovish, oil could soar.
Natural gas is getting new life as producers start to slowly cut back on output with pledges by the biggest natural gas producers. The key thing is whether the market believes that we’re going to cut back supplies enough to avert a major supply glut. Today the market seems to be suggesting the production may be enough but it’s going to be a day-to-day thing. As we said before, we still like the back end of the curve when it comes to natural gas options.