Joe Biden’s political Piggy Bank, formerly known as the Strategic Petroleum Reserve, is now empty with supplies drained down to the lowest level since 1983. Experts are warning about the ability of the US to come to the rescue in the event of a major global oil market disruption. Biden tapped the Strategic Petroleum Reserve to bring down gasoline prices and to improve his sagging poll numbers and now must face the fact that the ability to use the SPR to influence prices in the future or come to the rescue has been greatly diminished. While Biden celebrated the break in gasoline prices he says he achieved by using the SPR, he will now have to face the consequences of his choices.
The party is over as the historic release from the Strategic Petroleum Reserve has come to an end and we are already starting to see the damage from Biden’s ill-advised market manipulation. Biden’s anti-fossil fuel agenda and his use of the SPR to cool the price of oil have discouraged investment and are one of the main reasons the Energy Information Administration (EIA) had reduced its projection of shale oil production in the basins for the first time since December of 2022. US crude production is set to fall in August for the first time this year to 9.4 million barrels a day as we are starting to see more signs of peak oil production in the US as rig counts have plummeted.
On Friday U.S. energy firms cut the number of oil and natural gas rigs operating for the 10th time in 11 weeks, energy services firm Baker Hughes said in its closely followed report on Friday. The oil and gas rig count, an early indicator of future output, fell by 5 to 675 in the week to July 14. Baker Hughes said that puts the total count down 81 rigs, or 11%, below this time last year. U.S. oil rigs fell 3 to 537 this week, their lowest since April 2022, while gas rigs fell 2 to 133 according to Reuters.
This comes as US oil inventories, according to JODI, dropped by 10.5 million barrels and as US demand stays strong as consumers are failing to embrace the electric car revolution. That of course may be a good thing because with the recent heat waves, the power grid could not take it and besides there is a much worse impact on greenhouse gas emissions from electric cars for the first 60,000 miles or so. But I digress. The reality is we are seeing our foreign oil dependency rise as we head into the second half of the year where the US could be woefully undersupplied.
Yesterday, with the August oil expiration in play, none of that seemed to matter. The main reason for the market weakness, other than Libya’s restarting, was the report of the disappointing Chinese Gross Domestic Product GDP. It was reported that it grew just 0.8% in April-June from the previous quarter, on a seasonally adjusted basis, data released by the National Bureau of Statistics showed on Monday, versus analysts’ expectations in a Reuters poll for a 0.5% increase and compared with a 2.2% expansion in the first quarter. On a year-on-year basis, GDP expanded 6.3% in the second quarter, accelerating from 4.5% in the first three months of the year, but the rate was well below the forecast for growth of 7.3%.
Yet while oil bemoaned the fact that China was so weak, the question I ask, and keep asking is, that if China’s economy is so bad then why is their oil demand so good? It is a question that the Wall Street Journal also pondered going so far as to title the article, “Chinese Oil Demand Doesn’t Make Sense”. They write:
“China’s economy is having a rough summer, but the country is still churning out record amounts of diesel and importing vast amounts of crude oil. That imbalance is unlikely to persist forever. Either China’s economy will accelerate rapidly in the second half—a prospect that currently looks unlikely—or oil demand will revert to more regular patterns, dragging global consumption and, potentially, prices down with it.”
The Wall Street Journal reports that “China’s apparent petroleum demand—refinery runs plus net oil product imports—was up 25% and 17% year over year in April and May respectively, according to figures from data provider CEIC. Diesel production in May was 26% higher than a year earlier, and a full 40% higher than in May 2019 before the pandemic hit.”
India’s oil demand is also not something to sneeze at. In May, diesel sales hit an all-time high of 8.22 million tonnes, as per PPAC data going back to 1998. Last month it dipped during monsoon season but is on track to bounce back.
There are more signs that OPEC plus its favorite co-conspirator Russia, is making good on its commitment to drain the global oil supply. This morning Bloomberg reports that Russian, “crude shipments in the four weeks to July 16 dropped to 3.1 million barrels a day, according to vessel-tracking data monitored by Bloomberg and corroborated by other data sources. That’s down by 780,000 barrels a day from their peak in the 28 days to May 14. Shipments were 270,000 barrels a day below the level in February, the baseline month cited when the Russian government announced an output cut to come into effect in March.”
That means in the second half of the year supplies will tighten and there is no SPR to bail Biden out. Even Bloomberg News admits that “It only took about six months for the Biden administration to sell off 180 million barrels from the federal stash in the fastest withdrawal on record. But refilling it to capacity will likely take decades if it happens at all. Experts say that a lack of funding and aging infrastructure will plague the process, even as the Energy Department has pledged to keep buying.”
BlackRock (NYSE:BLK) is showing its commitment to ESG investing by naming Amin Nasser, the CEO of Saudi Aramco (TADAWUL:2222), the world’s largest oil company, to its asset manager’s board of directors. Dr Fatih Birol, Executive Director of the International Energy Agency IEA, had an intriguing thought by saying that natural gas is set to play a role in the global energy markets in the long term. So, I guess it’s a good thing that the IEA has called for the world to stop investing in fossil fuels like natural gas,. That way they can really fleece to the poor on the green energy agenda.