Biden and the democrats can be angry at OPEC-Plus all they want, but when it comes to an undersupplied global oil market, they really have no one to blame but themselves. Supporting Biden’s extreme-green energy agenda has caused the least amount of federal leases to be issued since the days of Harry Truman, causing investment in U.S. oil and gas to flee, and it’s hurting the prospects of U.S. manufacturing in the future.
Drilled but uncompleted wells in the United States are falling to a record low, and rig counts are not building fast enough to keep up with demand. This is signaling that the United States’ production is not going to rise at a quick enough pace to offset the negative impacts of rising global energy prices. No one can tell me that the U.S. and the world are not missing the products that would have come through the Keystone XL pipeline that Biden killed. That pipeline would have delivered supply more efficiently and safely and at a lower price for consumers.
High energy prices have played a part in the inflationary pressures that are causing great concern in the global economy, and according to the International Monetary Fund, the “worst is yet to come for many people 2023 will feel like a recession.” That is no joke because, for anybody that fills up their gasoline tank or pays their heating bill, this feels like a recession or depression.
Any shred of market optimism after those gloomy statements from Federal Reserve Bank of Cleveland President Loretta Mester, who said:
“Unacceptably high and persistent inflation remains the key challenge facing the U.S. economy. Despite some moderation on the demand side of the economy and nascent signs of improvement in supply-side conditions, there has been no progress on inflation.”
She does not sound like the type of person you’d want to invite to liven up a party.
The oil market, even though we have a looming global crisis, brought weaker demand fears with all the negativity surrounding the market. It did not help price momentum when the Strategic Petroleum Reserve reported that they had released 7.7 million barrels into commercial inventories last week. That would be the third-largest SPR release in history. The other two record releases were in August and September of this year on Biden’s order to drain our Strategic Reserve.
Because of the reserve release, exports were slowed in part due to the weather. The market realizes that we could see a big crude oil build in this week’s inventory number, yet at the same time, the product should draw, and I’m looking for a small draw in gasoline and distillate. The American Petroleum Institute reported issuing their snapshot of inventories one day late because of the U.S. holiday on Monday. The Energy Information Administration will release its data tomorrow. We woke up the natural gas inventory number on time at 9:30a and the EIA petroleum reports at 10a central time.
The oil market has been under pressure. I’m worried about the demand side of the equation, not only the slowing global economy but concerns about more China lockdowns. The reality is that even with slowing demand, the supply side is still dangerously low.
John Kemp at Reuters did a really good job encapsulating the tightness of global supply. Kemp pointed out that U.S. petroleum inventories, including the strategic reserve, have depleted in 86 of the last 118 weeks by a total of 480 million barrels and are at the lowest seasonal level since 2004. That is even with record-breaking SPR releases that are coming to an end, more than likely. U.S. distillate stocks have depleted in 69 of the last 118 weeks by a total of 66 million barrels and are at the lowest seasonal level since weekly records began in 1982. U.S. distillate stocks at the end of July, the most recent monthly data available, were at the lowest seasonal level since 1996 and before 1954. European distillate inventories have fallen by 122 million barrels over the last two years and are at the lowest seasonal level since 2002. Singapore distillate stocks have fallen by 9 million barrels since late 2020 and are at the lowest seasonal level since 2006.
Yet the rage at OPEC and Russia for cutting production by Biden and the democrats should be tempered by the fact that they are the ones that have done everything they can to put fossil fuels out of business. They’re the ones that have discouraged investment. I hate to agree with Russian President Vladimir Putin, but he is quoted as saying that the aggressive promotion of green energy in the E.U. led to underinvestment in the global oil and gas sector in the underinvestment was at about $2.5 trillion. That underinvestment means that when we have pipeline outages that are caused by sabotage or by natural causes, it’s going to cause bigger spikes in prices. Bloomberg News reported, “Oil switched between gains and losses after a leg of a vital crude pipeline from Russia to Germany was halted due to a leak. Brent futures erased an earlier decline to rally above $95 before trading little changed. Polish authorities are probing the cause of a leak on a section of the Druzhba pipeline — Europe’s largest crude oil conduit. A Polish government official said the leak was probably caused by accident and that there was no reason to think sabotage was involved.”
Regardless, we have to be on guard for any small disruptions. Small disruptions can lead to big price spikes in a world that’s way under-supplied.
Coal is king again. Potential natural gas shortages in Europe have the European continent scrambling to buy as much coal as they can. Even poor companies once thought to be dead are now hot properties.
Now the possibility of a big coal merger is hitting the rounds. Peabody Energy Corp (NYSE:BTU) is in talks to merge with Coronado Global Resources (ASX:CRN). Coronado confirms that it is in confidential discussions with Peabody regarding a potential combination transaction. However, no transaction has been agreed upon, and the discussions are ongoing. Coronado is not yet in a position to provide further details. There is no certainty that the discussions will lead to a transaction. Coronado will keep the market informed in accordance with its continuous disclosure obligations.
Natural gas is also undersupplied. EBW Analytics said that repeated, jaw-dropping injections well into triple digits could ultimately slash the storage deficit vs. the five-year average by 225 Bcf—4.6 Bcf/d—over seven weeks from early September through the end of October. Still, the market is poised to enter the heating season with the second-lowest inventory level of the past decade. With gas-to-coal switching already exhausted, substantial upside risks are helping to reinforce NYMEX support.