The Energy Report: Scraping the Bottom

Gas prices have reached new heights, causing concern for consumers. The current gasoline supply is about 7% below the five-year average for this time of year, and demand levels are at the tightest they have been in over a year. The Energy Information Administration (EIA) reported that total petroleum product demand in the US increased by 1.1 million barrels per day, resulting in a new weekly record high of 32 million barrels per day. This has caused retail gas prices to increase to $371.4 a gallon, up 13.4 cents from last week, and according to Dan Molinski at the Wall Street Journal, a new high for the year.

Molinski pointed out that the high fuel prices have caused companies to hike prices on everything from food to appliances and other household goods. This has contributed to the June 2022 overall consumer price index reaching a 40-year high of 9.1%. The Fed has suggested that they would be data-dependent, and they may need to focus on this rising gas price spike. The gasoline crack hit a new high of $42 as the market is urging refiners to max out production to avoid gasoline shortages. Diesel supplies are also low, with the EIA reporting them to be 14% below the five-year average and globally well below the 10-year average.

US oil production fell to 12.2 million barrels per day due to market distortions created by Biden’s SPR releases and disjointed energy policies, leading to falling rig counts and a peak in US oil production. The situation is concerning, and the Fed may need to keep an eye on the situation to ensure that consumers are not adversely affected.

Now with US petroleum supplies so dangerously tight, some may wonder why the US is exporting so much oil and products. Last week US petroleum exports surged to a whopping 10.931 million barrels a day.  The export surge was led by exports of gasoline to an astonishing 6.34 million barrels a day. Don’t tell that to someone who fills up their mini-van today. US crude exports surged to the tune of 4.591 million barrels a day close to a record and we also exported 1.248 million barrels of diesel as well.

And while we have been selling our Strategic Petroleum Reserve, China has been buying for their reserve. We only have 18 days of cover in our SPR but now China has, according to Clyde Russell, added a massive 2.1 million bpd to their crude inventories in June, as it boosted imports of cheap Russian oil. Amena Bakr reported that China’s apparent oil demand edged up in June versus May but remained below the record high set in April. Apparent demand of 15.86 million barrels per day in June was up 1.1% versus May but fell short of the 16.06 million b/d reached in April. Now the US is draining the oil stored at Cushing, Okla., the delivery point for U.S. stocks, falling by 2.6 million barrels from the previous week to 35.7 million barrels, the EIA said in its weekly report.

Yet the Saudis and Russia still want to take control of global oil prices as the US as an oil producer retreats. Saudi Arabia is expected to prolong the oil cut again. A survey shows the Kingdom may decide on extending 1 million-barrel cut next week as surveyed by Bloomberg. The speculation that Saudi Arbia is going to extend the lollipop production cut until the end of the year and more signs that Russia is acting to rein in production is going to solidify a floor for oil prices.

Oil Price reported that Russia’s exports by sea continued to slump last week and are now well below the February levels and nearly 1.5 million barrels per day (bpd) lower than the recent peak at the end of April, tanker-tracking data monitored by Bloomberg showed on Tuesday. Russia’s crude shipments plunged by 311,000 bpd to 2.73 million bpd in the week to July 23, as exports out of the Western ports on the Baltic Sea and the Black Sea crashed to 1.17 million bpd, down by 625,000 bpd from the previous week, according to the data reported by Bloomberg’s Julian Lee.

The latest update on the green energy transition from the International Energy Agency (IEA).  The IEA reports that, “Global coal consumption climbed to a new all-time high in 2022 and will stay near that record level this year as strong growth in Asia for both power generation and industrial applications outpaces declines in the United States and Europe, according to the IEA’s latest market update. Coal consumption in 2022 rose by 3.3% to 8.3 billion tonnes, setting a record, according to the IEA’s mid-year Coal Market Update, which was published today. In 2023 and 2024, small declines in coal-fired power generation are likely to be offset by rises in industrial use of coal, the report predicts, although there are wide variations between geographic regions.”

It might be hard to charge your electric car in California. Bloomberg reports that, “California’s main power grid operator issued an emergency watch notice for Tuesday evening as residents cranked up air conditioning during a heat wave. Energy use could outstrip available supplies and result in possible electricity shortages, the California Independent System Operator warned in a statement posted to its website. The grid operator was encouraging market participants to offer additional grid stability support services, while utilities may ask customers to reduce demand, it said. 

Some of the upside risks that we’ve been warning about for months are starting to come to fruition. With gasoline and diesel cracks near record highs and the possibility that we’re going to be seeing supply deficits in the coming weeks, is really going to keep upward pressure on prices. Be careful.