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The Energy Report: America Held Hostage Day 5

By Phil FlynnCommoditiesMay 11, 2021 09:13AM ET
The Energy Report: America Held Hostage Day 5
By Phil Flynn   |  May 11, 2021 09:13AM ET
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The hack attack on the Colonial Pipeline is entering day 5 and is already causing some spot shortages of gasoline on the East Coast as they are losing 1.25 million barrels of gasoline a day.

Airports are also reporting shortages of jet fuel that could impact flight schedules. The group that is claiming responsibility is called Dark side. They are from Eastern Europe and say they are apolitical and only in it for the money.

Yet this attack has gone too far and requires a national effort to stop these attacks as it risks U.S. security and puts American lives at risk. Still, President Joseph Biden says that Russia has “some responsibility” to come down on the hackers that may be based in Russia.

Colonial Pipeline says they hope to substantially restore service to the pipeline by the end of the week and has reopened some auxiliary pipelines that they are operating manually so that they can avoid the risk that there are still some latent bugs in the computer network. Yet “substantially reopened” does not sound all that convincing or comforting.

The crude oil market and gasoline futures sold off on the news. Oil also faced pressure because of reports that at least one Gulf Coast refiner is reducing runs because of the Colonial Pipeline hack.

Reports that traders are booking cargoes of gasoline from Europe are keeping futures prices calm as supply backs up on the Gulf Coast and drops on the East Coast. Yet there are fears that panic buying of gasoline on the East Coast could cause tanks to run dry if the pipeline does not come back online.

Bloomberg News reported that due to jet fuel shortages, “American Airlines Group Inc. has added additional stops to two long-haul flights originating from Charlotte, North Carolina. Airlines flying out of Philadelphia International Airport are burning through jet-fuel reserves and the airport has enough to last “a couple of weeks,” a spokeswoman said.

Oil also has geopolitical risk issues that are overhanging the market. Fox News reported that:

“U.S. warships Monday in the Strait of Hormuz fired warning shots at armed Iranian speedboats that had approached within 150 yards of the American flotilla, U.S. officials said. Two of the Iranian speedboats, armed with machine guns, broke off from a group of 13 Iranian craft and headed toward the U.S. formation at a high rate of speed, according to U.S. Naval Forces Central Command (NAVCENT). 

“After U.S. naval ships repeated verbal and acoustic warning, sounded five blasts of the ship’s horn, and fired warning shots,” the two Iranian craft withdrew, according to a statement by NAVCENT. The formation of six U.S. warships was escorting the guided-missile submarine USS Georgia through the Strait and into the Persian Gulf."

Also, the Wall Street Journal reports that:

“Israel struck scores of targets in Gaza and Palestinian militants launched more rockets early Tuesday, as tensions from days of clashes in the contested city of Jerusalem dramatically escalated overnight and both sides prepared for a wider conflict. Israel’s military said it has so far struck 130 targets belonging to Gaza-ruler Hamas, including weapons manufacturing sites, military facilities, and tunnels on the border that Israel says Hamas uses to launch attacks.

"Israel said it targeted a Hamas battalion commander and 15 Hamas military operatives. The Palestinian Ministry of Health said 24 people have died, mostly from Israeli strikes, including nine children. Israel’s military said it is investigating reports that children were killed and that some casualties may be the result of rockets that exploded in Gaza before reaching Israel." 

We reported that the Biden administration was lifting the Jones act. That was incorrect but they were considering it. At this time no decision has been made.

The oil market is still in an uptrend and despite demand concerns in India, we expect that demand will exceed expectations on the upside. We expect a sizable 4-million-barrel crude draw this week and a drop of 2 million barrels of gasoline and a 3 million barrel drop in distillation.

Next week’s numbers are going to be crazy due to the Colonial Pipeline hack. In the short-term, concerns of reduced runs are pressuring oil, yet it is turnaround Tuesday, so we could also look at the big picture, which for oil, is still bullish.

Argus Media reported that:

“Opec has raised the forecast call on its members’ crude this year by over 200,000 b/d after trimming its projection for non-Opec supply by a similar amount and keeping its global oil demand estimate unchanged.Opec now expects demand for its crude to average 27.65mn b/d in 2021, almost 5.2mn b/d higher than last year and around 2.7mn b/d higher than Argus’ estimate of the group’s April production.

"Call on Opec crude is projected to rise from 26.48mn b/d in the second quarter to 28.7mn b/d in the third and 29.54mn b/d in the fourth, according to the organization’s latest Monthly Oil Market Report (MOMR). The upward revision is underpinned by a downgrade in the group’s forecast for non-Opec supply, which it now expects to grow by 700,000 b/d to 63.6mn b/d. Last month’s report projected a 930,000 b/d rise to 63.83mn b/d. Growth forecasts have been revised down for the US, Norway, Canada, and Brazil.

Opec sees US crude output dropping by 280,000 b/d this year, compared with its previous forecast for a 70,000 b/d decline. The Permian basin is the only US tight oil play expected to see any output growth this year, building on a 140,000 b/d increase in 2020. Last year’s growth in the Permian came in the face of sharply lower oil prices and indicates that “some US tight crude production may have become more resilient to a lower oil price environment,” said Opec.

On the demand side, Opec has kept its overall forecast unchanged from last month’s MOMR. It expects global oil demand to grow by 5.95mn b/d to 96.46mn b/d this year, partly reversing last year’s 9.48mn b/d drop.

Slower than anticipated demand in the US and Canada in January-March combined with a steep rise in COVID-19 infection rates in India and Brazil have prompted a downwards revision in the estimate for the first half of this year, but that is offset by a slightly higher forecast for the second half.

“Positive weekly transportation fuels data from the US, and the acceleration in vaccination programs in many regions allows for optimism,” Opec said.

The Energy Report: America Held Hostage Day 5

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The Energy Report: America Held Hostage Day 5

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