The Energy Report: Diesel-ed Out

Hey brother, can you spare a can of diesel? U.S. diesel inventories fell to historic lows against a backdrop of a Federal Reserve that was not quite as hawkish as feared. Europe looks to be making progress toward a plan to ban all Russian crude oil imports and may even sanction others that deal in Russian black gold.

The OPEC JMMC meeting has ended, and they recommend sticking to a plan for a gradual increase in oil output for June. OPEC plus Russia look like they’re going to increase production by 432,000 barrels a day. Well, at least that’s the production target so far. OPEC has fallen short of even hitting its previous quotas, and it’s another bullish factor as many people question OPEC plus its ability to raise production with turmoil in Libya and the growing move to sanction Russian oil.

In another significant challenge to the global economy and to sanctions on Russia, U.S. diesel supplies plummeted to an all-time low. The Energy Information Administration (EIA) reported that distillate fuel inventories decreased by 2.3 million barrels last week and are about 22% below the five-year average for this time of year. In the key New York Harbor delivery point, supplies hit the lowest level since 1996, leaving users of diesel worrying as to where they can get their next gallon of diesel and wondering what it will cost.

The latest sign that Europe is going to be moving forward with the Russian oil embargo is commented by the French Energy Minister Barbara Pompeii, who said she is confident that we will reach an E.U. consensus on a Russian oil import embargo by the end of this week. Considering that the week is almost over, one would assume that the market better is on guard for the final details. I love how the E.U. is going to go about this.

Reuters reports that the plan, if agreed by member states, would take effect in six months for crude and in eight months for diesel and other oil products. Under the proposal, Hungary and Slovakia would be granted a longer period – until the end of 2023 – to adapt to the embargo. This means that countries in the E.U. would still be able to purchase Russian oil via Hungary and Slovakia unless the plan is ratified to prevent both countries from buying more oil than they need. European countries might still continue buying Russian cargoes from other third countries without being aware of their origin.

U.K. Prime Minister Boris Johnson will meet his Japanese counterpart Fumio Kishida in London, where they are expected to discuss a plan to support Asian nations in diversifying away from Russian oil and gas.

The NOPEC bill is back. Reuters reports that the bipartisan NOPEC bill would change U.S. antitrust law to revoke the sovereign immunity that has long protected OPEC and its national oil companies from lawsuits. If signed into law, the U.S. attorney general would gain the ability to sue the oil cartel or its members, such as Saudi Arabia, in federal court. Other producers like Russia, which works with OPEC in a wider group known as OPEC+ to withhold output, could also be sued. Good luck with that. In theory, in a perfect world, it would be perfect to be able to shut down the OPEC cartel. Collusion between these countries has cost Americans a lot of money over the years. On the flip side of that, OPEC has at times acted as a responsible central bank of oil. The problem is that when push comes to a shove, they always act in their best interest.

Right now, because relations between the United States and Saudi Arabia are at a very low point, this bill might not be helpful in reestablishing good ties between the Biden administration and Crown Prince bin Salman. I do believe that if the relationship between the Biden administration and Saudi Arabia was better, OPEC would be pumping more oil. Perhaps they would agree to make up for lost supplies from Russia. Yet because of Biden’s foreign policy that has angered the longtime ally of the U.S., they have decided not to give in to U.S. pressure to raise oil output.

The EIA also gave us supportive data across the board. The EIA put commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.3 million barrels from the previous week. At 415.7 million barrels, {{8849|U.S.crude oil inventories are about 15% below the five-year average for this time of year. Total motor gasoline inventories decreased by 2.2 million barrels last week and are about 4% below the five-year average for this time of year. Finished gasoline inventories increased while blending components inventories decreased last week.

Natural gas is still on a tear. It seems that not only is the North American natural gas market getting supported by cold weather, but it also is becoming more of a part of the global picture as it appears that U.S. natural gas exports will continue to rise in the future. We all know that more export capacity is going to be coming online and if there is a shift in the midterms, can we assume that there will be fast-tracking of pipelines that can actually increase U.S. natural gas export capabilities. In the meantime, watch for breaks to hedge for the summer months as the underlying fundamentals are solid.