While the Biden administration takes more steps to reduce the country’s ability to produce oil and gas by blocking leases in Alaska, Saudi Arabia is looking to increase its geopolitical power by using its energy dominance.
Saudi Crown Prince Bin Salman said,
“I believe the Middle East will be the new Europe. In 5 years, Saudi Arabia will be a completely different country. “This is the Saudi war. This is my war. I want to see the Middle East on top of the world before I die.”
India and Saudi Arabia today also likely to sign an energy cooperation memorandum of understanding today. Russia is meeting with North Korea. The world is changing.
This comes as Saudi Arabia has led OPEC and Russia into oil production cuts and an oil pricing structure that is designed to drain the US oil supply that as we pointed out last week, is at the lowest level in real terms since 1985. The Saudis last year raised their selling price of oil to Asia and Europe so US Strategic Petroleum Reserve oil would be sold and bought overseas. Now they have raised their price of oil to the US to make it harder for us to meet demand and further encourage US oil supply drawdowns. And we should see more crude draws this week.
Americans are feeling the pain as gas prices are on the rise again and distillate inventories globally are low. AAA says that $3.832 the price for regular unleaded is at $3.832 a gallon, a near record for this time of year. Diesel prices are at $4.475 a gallon which is painful for manufacturers, farmers, and transportation companies but also raises concerns about the cost and availability of home heating oil. The supply squeezes were made worse by attempted market manipulation with ill-advised releases from the Strategic Petroleum Reserve. It is also why The Energy Report has been warning to get hedged for what is close to record-breaking prices.
This week we expect to see and 3 million barrel crude draw and draws of 3 million barrels on both gasoline and distillates. Some are pointing to the slowing down of refineries but also the main reason that we are seeing strained investment in refining capacity is the capital moving away from fossil fuels and into alternative energy sources. Earlier this year Bloomberg was touting the fact that global low-carbon or clean energy transition investment jumped 31% in 2022 with a total of $1.1 trillion, drawing level with capital for fossil fuels. Yet that diversion of capital has seen that we have not invested in refinery upgrades and have seen US rig counts start to signal a peak even as the oil companies are becoming more efficient.
Oil is also getting support from the Dollar Bloomberg says that the dollar’s record winning streak came under threat as China and Japan took aim at its recent rally with more verbal intervention. The Bloomberg Dollar Spot Index fell as much as 0.6%, the most since August.
Natural gas, heat, and no wind should get us another bullish report from the EIA this week. EBW Analytics reports that the October contract reached a three-month low last week at $2.500/MMBtu as weather forecasts definitively called an end to summer with a 19 CDD and 20 Bcf demand decline. Daily CDDs are falling rapidly—and could halve again from Monday to Friday this week. Although rapidly falling storage surpluses offer a degree of fundamental support, inventories remain 222 Bcf above the five-year average and 462 Bcf higher year-over-year. Together, high storage and enduring high production indicate a retest of support is likely near term.
Today we all need to take some time and pray for those who perished in the Sept 11th attacks. Pray for the victims and their families as we also pray for our country, and pray for peace.