Biden is on the verge of another gasoline price hike, and this time there is not much he can do about it. Last time when the gasoline price became a political liability for him, he decided to change the mandate of our Strategic Petroleum Reserve (SPR) to a price control mechanism to help his poll numbers.
That is opposed to what it was designed for, and that was for the SPR to be used in the event of an emergency to offset disruptions in supply. I don’t think plunging poll numbers is the type of emergency they had in mind when they created the reserve in the 1970’s. Yet now, after Biden has drained the reserve, his options are limited, and some in the refining industry are blaming Biden's energy mandates for a historic plunge in the US gasoline supply.
Yesterday, the American Petroleum Institute reported an absolutely jaw-dropping 6.4-million-barrel drop in gasoline supply week over week. That added to a deficit that already saw inventories at the lowest level pre-Memorial Day since 2014. That is really an all-time low if you consider the increase in gasoline demand as a comparison. Demand will more than likely see another upward revision by reporting agencies soon.
While refiners have brought on more capacity, gasoline demand has defied the Fed and experts by refusing to drop. Some are blaming Biden’s new gasoline mandates for the plunge in gasoline supply. Bidens EPA enacted what is called Tier 3 federal EPA standards that require petroleum refiners to reduce the sulfur content of gasoline from an annual average of 30 parts per million (ppm) to 10 ppm. It also sets motor vehicle emission standards to be phased in from model year 2017 through 2025 as it was to push America into electric cars.
The logic of Biden’s team electric car dreams might have been summed up best by US Transportation Secretary Pete Buttigieg who said, “It is cheaper to fill up a car or truck with electrons, typically, than with gas or diesel.” Now I would say that Secretary Buttigieg’s statement was a positive, but the problem is that electrons are negative. Which is ok I guess because opposites attract, but I digress. But the operative word is that electric cars are cheaper to run but that is not always the case and, in the future, as we tax and upgrade the power grid, it will most likely cost more.
Biden’s Electric Car push has been Great! Great for China that is! It was reported by the BBC that China is now the world’s leading exporter of automobiles after reporting export figures of 1.07 million vehicles in Q1 2023.
In the meantime, Americans want gasoline and that is getting harder to find. Not just based on plunging inventories in the US but even in Russia. Yes, that Russia, the one that has been compared to a big gas station. They are considering putting a halt on gasoline exports because Russian President Putin is worried about meeting domestic gasoline demand.
Maybe Mr. Putin, who is putting Russia’s energy security first, can give Biden some tips on that as he has exported the bulk of our Strategic Petroleum Reserve to the rest of the world. In the US, New York Harbor is scrambling to get supply as they failed to secure gasoline supply from Europe as their supplies are tight as well and continued to draw on the Gulf Coast.
Reuters reported that after the European Union introduced a ban on Russian refined oil products including diesel and fuel oil from early February, Russia boosted gasoline exports by nearly 50% year on year in the first quarter, shipping cargoes directly to Africa. But now Putin wants to keep supply at home and has reduced subsidies for Russian refiners.
So, it will be a hard sell for the Biden team to reverse course and release oil from the SPR after they promised they would refill it. That would get huge political backlash from the Republicans but also from anyone who had a distaste for fossil fuel hypocrisy. But the hard reality is that the US oil supply of crude are already starting to plunge, and the supply drain should get worse in the coming weeks.
Yesterday the API reported a big 6.8-million-barrel drop in crude supply. US production of oil though looks like it is topping out as rig counts plummet in part because of Biden’s intervention in the market with SPR reserves and policies that demonize the fossil fuels industry and discourages investment and education in the fossil fuel industry.
Diesel inventories have taken a back seat on supply concerns from gasoline yet still fell by 1.8 million barrels. Diesel supply concerns were a bigger issue before and the supply tightness still has not gone away for that market. The API data is forcing the petroleum sector to try to divorce itself from all the macroeconomic madness with the debt ceiling talk and the Fed speaker of the moment and focus a bit more on current supply and demand.
The record short position in petroleum may start to take notice. They may ignore the warnings from the Saudi Energy Minister Prince Abdulaziz bin Salman who said he would just tell them: Watch out!” or perhaps it will be the bullish data that flushes them out their shorts. Or maybe they are right. Maybe the Biden team along with the Fed will engineer a big economic collapse just ahead of the driving season. But they better hurry, it starts this weekend, and I am sure the pump prices will already be heading up.
The potential for the price squeeze that I have been warning about is starting to happen. If you don’t have your hedge placed, it is probably advisable to do so. The market may lose the ability to ignore the coming supply shortfall for much longer. Maybe Biden’s best play to cooling gasoline prices at this point is to blow up the economy by standing firm on his commitment to out-of-control spending and oppressive taxes so he can start tweeting again about what a great job he did bringing down pump prices. You know something like, yes, we defaulted on our debt and are going into a depression but look how much money I saved you at the gas pump.
The short squeeze on natural gas, we hardly knew you, may be ending. EBW Analytics writes that “a cresting short squeeze led natural gas sharply lower to open the week. Further weakness may lie ahead as June approaches final settlement on Friday and July struggles to maintain a sizable 25-30¢ premium to spot prices.
In the immediate term, the propensity towards bearish outcomes for the expiring front-month contract in 8 of the past 10 months. Over the next 7-10 days, enduring weather weakness, diminished LNG exports, a possible production bounce, and power burns pressured by rebounding ERCOT wind and nuclear output could weigh on the July contract. As the market transitions into mid-summer, however, the storage surplus vs. the five-year average may flatten out and begin to turn lower—foreshadowing declines into the back half of summer and emerging upside for NYMEX futures.