The back end of the oil curve has been rising, suggesting that it is becoming more obvious to everyone that high oil prices are going to be with us for a long time. Those so-called days of lower for longer are now higher for longer. Perhaps the only thing that can stop oil now is demand destruction or perhaps another lockdown in China, which I guess is the same thing, differently, but I digress.
Reports of more lockdowns in China are being offset by more threats to oil supply as Libyan oil output is down by 450,000 barrels a day and the possibility of a Norway oil strike. At the same time, gas prices are just shy of the $5.00 a gallon mark as AAA reports another record, putting regular unleaded at $4.986 a gallon and diesel at a record $5.753, and demand is still holding up.
Bloomberg News reported that Shanghai will briefly lock down most of the city this weekend for mass testing as COVID-19 cases continue to emerge, causing more disruption and triggering a renewed run on groceries days after exiting a grueling two-month shutdown. The plan emerged from one area with a handful of cases, then spread in hours to 15 of the financial hub’s 16 districts. It encompasses almost all of the city’s 25 million residents as health officials use testing to root out any silent transmission of the virus, a key tool in China’s COVID Zero arsenal.
The news dipped oil but only for a while as buyers came running back in. One reason is that, as Reuters reports, Norway’s petroleum output could be reduced by an unspecified amount if workers go on strike at nine offshore fields on Sunday, the Norwegian Oil and Gas Association (NOG) said on Friday. Some 845 workers out of roughly 7,500 employees on offshore platforms plan to strike from June 12 if annual pay negotiations with employers fail, trade unions Safe, Industri Energi, and Lederne have said. If Norway’s state-appointed mediator is unable to broker a deal, union members will be eligible to go on strike, and the dispute could escalate the following week as more workers may join the strike.
Libya is also supporting prices. S&P Global reported that Libya’s oil sector had been hit by more supply disruptions due to closures of the 200,000 b/d Sarir field and the 250,000 b/d Es Sider terminal as protestors blockaded those sites and industry sources told S&P Global Commodity Insights June 10.
Russia is still raking in cash with these higher energy prices, and now it seems their production is rising. Global reported that crude oil production from OPEC and its Russia-led allies rebounded modestly in May from a steep drop in April but remains well short of its collective quotas, according to the latest Platts survey by S&P Global Commodity insights, highlighting the group’s continuing struggles with sanctions and unplanned outages.
OPEC’s 13 members pumped 28.62 million b/d in May, down 180,000 b/d from April, including major losses in Nigeria and Libya, while nine other countries partnering with the producer group added 13.08 million b/d, a rise of 300,000 b/d, led by gains in Russia and Kazakhstan, the survey found. That is a net 120,000 b/d gain in the month by the entire OPEC+ alliance. But with production quotas rising monthly under the OPEC+ agreement, the group underproduced its target by 2.616 million b/d, with compliance at a lofty 182.5%, according to S&P Global calculations.
I believe someone once said that insanity was defined as doing the same thing over and over again and expecting a different outcome. So would it be fair to say that talk that the Biden administration is thinking about another release from global Strategic Petroleum Reserves as a method to lower prices is a sign that this administration has gone insane? I am just asking the question. I guess when you’re like our energy secretary Jennifer Granholm and drive a Chevy Volt charging it with solar panels on your roof, you feel outstanding about driving in the sunshine. You don’t have to worry about the fact that electricity prices are going through the roof!
Gasoline prices are at record highs, and the poor and the middle class that could never afford an electric car are getting squeezed, unlike anything we’ve seen in generations. Besides, things are great as long as you’re rich and you can afford an electric car.
We also get the USDA report today on grains which may be critical as regards global food supply and prices. Mike Shedlock from a MishTalk.com wrote that talks between Turkey and Russia aimed at providing safe passage for Ukraine’s harvest failed. Turkey attempted to mediate safe passage in the Black Sea for Ukraine’s grain harvest but objected to the Black Sea proposal in a statement on Tuesday before the talks in Turkey.
A significant portion of the world’s food supply is on the line, but Ukraine nixes a potential deal. The Ukrainian Foreign Ministry said:
“We cannot rule out Russia’s plans to use such a corridor to attack Odesa and southern Ukraine. That is why effective security guarantees are needed to restore shipping.”
The stakes of a possible deal are enormous, with a significant portion of the world’s food supply on the line. Russia’s invasion left around 20 million metric tons of grain and seeds stranded in Ukrainian territory seized by Russia or cut off from the Black Sea ports through which it is normally exported. Russia’s bombing of roads, bridges, and other infrastructure, along with a blockade of Ukraine’s ports, have added to the obstacles to getting grain out of the country, Ukrainian officials and farmers say. the Ukrainian Foreign Ministry said Tuesday:
“We emphasize that decisions must be made with the participation of all parties involved. We will reject any agreements that do not consider the interests of Ukraine.”
Natural gas was plunging on the Freeport LNG Export terminal fire but bounced back because the fundamental outlook for natural gas is still very bullish, and hopes that it will be less than three weeks for Freeport to get back online. We also saw a supportive report from the Energy Information Administration (IEA). Working gas in storage was 1,999 Bcf as of Friday, June 3, 2022, according to EIA estimates. This represents a net increase of 97 Bcf from the previous week. Stocks were 398 Bcf less than last year at this time and 340 Bcf below the five-year average of 2,339 Bcf. At 1,999 Bcf, the total working gas is within the five-year historical range.