U.S. President Joe Biden yesterday called on Congress to enact a federal gas tax holiday and congratulated Russia for raising its production to pre-Ukraine war highs. The president, after bashing U.S. oil companies claiming that they need to lower gas prices now because the country is on a so-called ‘war footing’, then seemed to congratulate OPEC+ for raising production. Does he understand the ‘plus’ in OPEC+ is Russia?
Biden blamed ‘Putin’s price hike’ and called the record refiner margins “not acceptable.” So, while we are spending billions of dollars of taxpayer money to support Ukraine in its war against Russia, we are at the same time congratulating them for their war profiteering. Not only have their exports surged to places like China and India, but some EU countries are paying for the oil in rubles as demanded by the Russian president. Russia’s oil revenues are exceeding pre-Ukraine war levels. No wonder Biden wants to congratulate them. Now it appears that the Biden administration wants to help Russia get more oil revenue because it is asking the EU to go easy on sanctions!
The Wall Street Journal reports, “The U.S. push to pare back one of the European Union’s sanctions on Russian oil has tentatively started to gain traction within the 27-member bloc, with officials weighing whether to allow insurers to cover shipments of Russian oil if the price the oil will sell for falls under a cap. After weeks of infighting, the EU in early June approved a ban on insuring shipments of Russian oil alongside a ban on imports of Russian oil that is set to go into effect this later year. Because many shipments of Russian oil are insured in the EU and U.K., Treasury Secretary Janet Yellen has repeatedly said she is concerned that the EU’s plans could take Russian oil off the global market and further drive up prices. While the U.S. and EU have moved to ban Russian imports, many developing countries as well as China and India continue to purchase oil from the country. Yellen said she was discussing creating a carve-out in the insurance ban to allow shipments to low-income and developing countries that fall under a price set by the West.
Forget the gas-price holiday. As we predicted, it seems that gas prices at the pump have already peaked. We have to congratulate the U.S. refining industry that has done an amazing job of squeezing more blood out of a turnip as well as price-related frugality when it comes to gasoline buyers. Falling consumer and business sentiment caused by inflation fears are keeping recession fears strong and the oil trade is trying to assess just how bad the demand destruction could get, but do not rest too easy. We are still stretched on the refining front just about as far as we can be and there is no room for error. Even a small refining issue may have a big price impact going forward. Normally we would be gearing up for the weekly EIA petroleum status report but not so fast.
People with tin foil hats might think it’s suspicious that the Energy Information Administration (EIA) has a suspicious computer glitch the same day the president gave a speech about the U.S. refining sector gouging the public while at the same time congratulating OPEC+ for raising production. Yet, the EIA shortly after Biden’s speech issued a press release stating, “Several U.S. Energy Information Administration (EIA) product releases scheduled for the week of June 20, 2022, will be delayed as a result of systems issues. Our experts are working on a solution to restore the affected systems. We will release the Weekly Natural Gas Storage Report as scheduled on June 23. All other data releases scheduled for this week will be delayed. We will resume our normal production schedule and release delayed data as soon as possible. We apologize for the inconvenience of this.”
They also pointed out that they, “remain committed to our mission of collecting, analyzing and disseminating independent and impartial energy information as we resolve this issue.” No, if I was the suspicious type I would wonder why they have to point out that they issue independent and impartial information. Just for the record, I do not own a tin-foil hat, but I do think I might look good in one.
So, without the EIA petroleum inventory numbers, the API is the only game in town. The API reported that crude supplies rose by more than expected by 5.607 million barrels. That number obviously was enhanced by another 6-million-barrels-plus release from the Strategic Petroleum Reserve. We also saw an increase in gasoline inventories of 1.216 million barrels that, of course, is good news for people at the pump. It also shows that the U.S. refining industry is responding to higher prices. Yet, the news is not as good on the distillate side of the equation. The API reported that distillates fell by 1.656 million barrels keeping them near historically low levels.
The volatility in the oil market is going to remain high but we believe that the bottom for oil is close to being in. That does not mean that we couldn’t retest the lows or even go lower but from a value point, we believe that this correction should be over soon. Buyers of oil may want to be ready to lock in some hedges very soon even though the market may believe we are going into a recession. We believe that has been priced in to a large degree. This is still a supply and demand issue. Fed chairman Jerome Powell in one of the statements said that he saw signs that China’s economy was starting to pick up. If that’s the case, we are going to see this current global supply squeeze get worse.
We will get the natural gas report from the EIA. Dan Molinski at the Wall Street Journal reports, “U.S. government natural-gas data due Thursday is expected to show inventories rose last week by a smaller amount than normal as hot weather in Texas and other southern regions boosted demand. The Energy Information Administration is expected to report that gas-in-storage levels increased by 66 billion cubic feet during the week ended June 17, according to the average forecast of 12 analysts, brokers, and traders surveyed by The Wall Street Journal.
Estimates range from increases of 58 bcf to 76 bcf. The average forecast compares with a 49 bcf increase in storage last year and an 82 bcf five-year-average rise. A 66-bcf increase last week would mean gas stocks totalled 2.161 trillion cubic feet, 13% below last year’s total at this time, and 14% below the five-year average for this time of year. The market has maintained a bullish inventory deficit compared with averages throughout the year, due partly to a colder-than-normal winter and an early arrival of summer, both of which have boosted demand. Whether that deficit remains, however, is uncertain as analysts say the shutdown of an important LNG plant in Texas two weeks ago may sharply reduce feed gas demand and could soon cause inventories to rise more quickly.