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The Energy Report: Break Your Back

Published 09/12/2023, 09:41 AM
Updated 07/09/2023, 06:31 AM

If you step on the crack, it can break your mother’s back. But when you run global oil inventories to near-historic lows, could you break the global economy? The market is on a tinder box, vulnerable to price spikes and that is what we are experiencing.

Diesel cracks and gas cracks soared as we head into maintenance season with products screaming for attention as risks to supply are rising and are blowing the top off the market. More spikes in gasoline and diesel prices are coming to gas stations near you as we are going to start to feel the impact of energy policies that diverted investments away from fossil fuels into alternatives that are not ready for prime time and will not help us avert oil diesel and gasoline shortfalls. Diesel inventories that are based on demand are close to all-time lows and cannot afford any mishaps. Breaking OPEC DATA SHOW 3 MILLION-BARREL SHORTFALL AS SAUDIS EXTEND CUTS

Mother Nature bailed us out last winter with historic warmth and now it is working against us. Not only did we see record heat slow refinery operations, but Hurricane Lee is headed in the direction of New Brunswick (NYSE:BC) where one of the most critical refineries for diesel supply is already in maintenance.

The Irving Oil Refinery which is Canada’s largest refinery, has already caused worries about diesel supply as North America is becoming more dependent on these 320,000 barrels per day (bpd) Saint John refinery on Canada’s east coast. This is not good as distillate inventories are below the 10-year average and at record lows if you base it on global demand.

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Reuters is reporting that the U.S. East Coast will lose about 120,000 barrels per day (bpd) of distillate fuels normally produced by Irving Oil’s refinery in St. John, Canada, and Delta Airline’s DAL.N Trainer, Pennsylvania, refinery, according to Reuters calculations from the lost refinery output. Reuters reported that U.S. diesel futures’ 7.6% increase since last month, attracting a small number of imports from outside the region, including from the U.S. Gulf Coast and as far afield as Colombia and Nigeria. Yet what I am also hearing is that US exports are also low because other countries might be hoarding supply as they do not want to get caught short this winter.

Crude also got support from another storm. According to Quantum (NASDAQ:QMCO) Energy, Storm Daniel battered the Libyan coast over the weekend, causing severe flooding and hundreds of fatalities and forcing at least four oil terminals to close for several days. The terminals of Es Sider (export capacity of 300,000 bpd), Ras Lanuf (250,000 bpd), Zueitina (90,000 bpd), and Brega 60,000 bpd, all located in the Gulf of Sidra were forced to close on Saturday and will be out until at least Tuesday, according to local media.

Hedge funds are adding to the liquidity in the oil and petroleum market once again. Earlier in the year they fled because of banking fears and a Fed rate hike fears but now they are being brought back in by the good old supply and demand fundamentals that have led to hedge funds’ largest bullish bets in over a year. Now even as we expect a big gasoline demand pullback after the Labor Day holiday, the price break at the pump may be muted on supply concerns.

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The gasoline crack has rebounded big time after it had already priced in the post-holiday slowdown. Now it is focused on the market getting squeezed by a lack of refinery space. The global supply squeeze in petroleum has been driven by the green energy movement and by politically driven international energy agencies that have moved away from being reliable speakers of the truth and more geared toward pushing a green energy agenda. The International Energy Agency, which was famously wrong for predicting peak oil supply and later peak oil demand is at it again, saying that this time, really this time, the demand for oil and gas will peak.

IEA director Fatih Birol in an opinion piece in the Financial Times is making a claim that oil demand will peak this decade. He writes,

“There’s a taboo in the traditional energy sector against suggesting that demand for the three fossil fuels — oil, gas and coal — could go into permanent decline. Despite recurring talk of peak oil and peak coal over the years, both fuels are hitting all-time highs, making it easier to push back against any assertions that they could soon be on the wane.” 

Well, that is because your track record on these types of predictions has been flat-out wrong and misleading. It has also led to a diversion of capital that has left us trillions of dollars short of the fossil fuel investments that we desperately need.

He then writes,

“The “Golden Age of Gas”, which we called in 2011, (ok maybe he got that one sort of right) is nearing an end, with demand in advanced economies set to fall away later this decade. This is the result of renewables increasingly outmatching gas for producing electricity, the rise of heat pumps, and Europe’s accelerated shift away from gas following Russia’s invasion of Ukraine.” 

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Yet as Zerohedge points out, coal is not going anywhere. “Coal still leads the charge when it comes to electricity, representing 35.4% of global power generation in 2022, followed by natural gas at 22.7%, and hydroelectric at 14.9%.

The EIA reports that, “The EIA reports that Electric vehicles and hybrids make up 16% of U.S. light-duty vehicle sales. Hybrid, plug-in hybrid, and battery-electric vehicle sales in the United States have increased in recent years as sales have decreased for non-hybrid gasoline- or diesel-fueled vehicles. In the second quarter of 2023 (2Q23), hybrid, plug-in hybrid, and battery-electric vehicles collectively accounted for 16% of light-duty vehicle sales in the United States, according to data from Wards Intelligence. Not enough to make a big difference in gasoline demand.

Mr. Birol said,

“Peaks for the three fossil fuels are a welcome sight, showing that the shift to cleaner and more secure energy systems is speeding up and that efforts to avoid the worst effects of climate change are making headway.”

Yet I am not sure who made Mr. Birol a climate scientist and by what basis he makes this claim other than politics. Yet because of hyping these claims, the IEA has encouraged policies that have led to the shortages we are seeing today.

As was reported last week and again by Zero Hedge, “More than 1,600 scientists, including two Nobel laureates, have signed a declaration saying that “There is no climate emergency.” They write that,

“Climate science should be less political, while climate policies should be more scientific,” states the declaration signed by the 1,609 scientists, including Nobel laureates John F. Clauser from the US and Ivar Giaever from Norway/US.

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The statement adds: Scientists should openly address uncertainties and exaggerations in their predictions of global warming, while politicians should dispassionately count the real costs as well as the imagined benefits of their policy measures. “The geological archive reveals that Earth’s climate has varied as long as the planet has existed, with natural cold and warm phases. The Little Ice Age ended as recently as 1850. Therefore, it is no surprise that we now are experiencing a period of warming.

“Warming is far slower than predicted. “The gap between the real world and the modeled world tells us that we are far from understanding climate change. “Climate policy relies on inadequate models.

Climate models have many shortcomings and are not remotely plausible as policy tools. They do not only exaggerate the effect of greenhouse gases, they also ignore the fact that enriching the atmosphere with CO2 is beneficial.

“Global warming has not increased natural disasters. There is no statistical evidence that global warming is intensifying hurricanes, floods, droughts, and such natural disasters, or making them more frequent. However, there is ample evidence that CO2 mitigation measures are as damag­ing as they are costly. “Climate policy must respect scientific and economic realities. There is no climate emergency. Therefore, there is no cause for panic and alarm. We strongly oppose the harmful and unrealistic net-zero CO2 policy proposed for 2050. Go for adaptation instead of mitigation; adaptation works whatever the causes are.”

That means that maybe we should not bankrupt the poor and middle class and force them to buy electric cars that have many environmental problems of their own and will make America less efficient economically.

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While the Biden administration seemed to mark September 11th with a prisoner swap and giving Iran billions of dollars of frozen assets, reports that the Biden team stopped at least one slow boat to China of one million barrels of Iranian oil. Maybe Iran will want that back as well. This comes on reports that Israel is concerned about a buildup of Russian weapons in Iran. Zero Hedge reported that Israel’s Mossad Director David Barnea on Sunday expressed alarm over the potential for Russia to give advanced weapons to Iran, amid the two countries’ deepening relations connected to the Ukraine war and Moscow’s use of Iranian drones.

“Our fear is that the Russians will transfer to the Iranians in return what they lack (of advanced weaponry),” Barnea said in statements cited by The Times of Israel.

So glad the grown-ups are in charge. Cash diesel prices are close to the high for the year hitting the highest level since January. Gasoline prices in futures are also on the rise. Oil should get support from another large drop in Cushing, Oklahoma’s supply. While reports that oil exports might slow the odds are high for another crude oil supply drawdown. Kepler is reporting that “Global oil inventories are now at their lowest levels since their tracking data began (2017), and they believe will end 2023/2024 at a ~378MM/750MM Bbl deficit relative to a 2017-2019 baseline average.

If you missed your opportunity to hedge, call me and we can make a plan. With supplies so low, the risks for price spikes are high so be prepared.

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Latest comments

Flynn being proved correct about all his warnings of disastrous Obama/Biden gang policies - punishing US oil production while giving money to Iran, pumping money into CCP China for solar panel production, harming whales via wind turbines, allowing Venezuela/Maduro to make money on oil, etc.....
Step on a crack and hedge funds and Phil Flynn will profit off of the middle class's back.
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