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The Energy Report: Front Loading Barrels

By Phil FlynnCommoditiesDec 02, 2022 10:12AM ET
www.investing.com/analysis/the-energy-report-front-loading-barrels-200633067
The Energy Report: Front Loading Barrels
By Phil Flynn   |  Dec 02, 2022 10:12AM ET
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The Biden administration previously released Strategic Petroleum Reserve (SPR) releases are coming to an end, and now the administration is running out of options and barrels to try to offset a major crude oil deficit in the United States. The plunge in oil inventories not only has the administration looking to the Maduro regime in Venezuela to get more barrels of oil, but they are also panicking behind the scenes about the market impact that is bound to happen after the U.S. Strategic Petroleum Reserves releases come to an end.

There are also growing worries by some in the industry about the impact of further drawdown in our strategic inventories as Biden says that the reserve is “more than halfway filled” and is going to ask Congress to cancel oil sales that were previously scheduled to be sold for budget purposes and front load them so he can implement what he calls a ‘ready and release plan” so he can respond to price spikes and International events. 

Yet Biden is going to find out that this game he is playing to try to control oil prices with our SPR is going to end badly and may be the excuse that OPEC needs to announce a surprise production cut at this week’s meeting.

Bloomberg writes that the Energy Department is seeking to cancel or delay sales mandated by Congress in fiscal years 2024 through 2027 so that it can move forward with a White House plan to refill the oil reserve when crude prices reach around $70 a barrel, an agency official told a Senate committee Thursday. 

Congress has mandated the sale of 147 million barrels of oil to pay for unrelated legislative initiatives during that time frame, including 35 million barrels in fiscal 2024, according to data compiled by research firm ClearView Energy Partners. 

 Doug Macintyre, the department’s Deputy Director for the Office of Petroleum Reserves, said in testimony before the Energy and Natural Resources Committee:

“It doesn’t make sense for us to be releasing oil while we’re trying to refill the SPR. We can’t fill and release from the same site at the same time.”

Biden also says that he wants to refill the reserve when oil prices fall below $70 a barrel. The problem with that theory is that prices might not fall below $70 a barrel for a very long time. That reminds me of when then-presidential candidate John Kerry said he wanted to refill the reserve but would wait till oil prices fell to $30 a barrel. That means you would have to wait till about 2020, which is also the same time when President Trump wanted to refill the reserve at about $23 a barrel.

Yesterday Chevron CEO Mike worth said that given the supply risk, oil prices are more likely to rise and fall in the near term. He says that right now, the equity markets do not support increased spending on oil and gas, and he also says that about the Biden administration’s cunning plan to refill the Strategic Petroleum Reserve around the $70 a barrel level. He said filling the SPR at that level is “not necessarily a wise move.”

Not to worry because Venezuelan dictator Nicolas Maduro is ready to help us out. Reuters reports that U.S. oil refiners that once were regular buyers of Venezuelan crude are jockeying to win access to coming cargoes chartered by Chevron Corp (NYSE:CVX) under a newly issued U.S. license, two people familiar with the matter said. The Biden administration last week authorized Chevron to expand operations in Venezuela and resume taking prized heavy crude to the United States. It was the first easing in more than three years of a U.S. ban on imports from the South American nation. A further relaxation may follow if Caracas and opposition leaders agree on terms of a presidential election, Washington has said.”

If we can get through today’s jobs report without any major concerns that the Fed will be very aggressive in raising rates, we’re probably going to have a good day for oil and products. Traders will be hesitant to be short over the weekend if there are growing rumblings that OPEC might try to shock and awe the market at their weekend meeting. Keep in mind that the base case is still that OPEC will just roll over current production cuts, but because the Biden administration keeps poking the bear with promises of SPR releases, they could respond by withholding a few barrels.

Natural gas prices dipped, and reports that the U.S. rail strike will be averted means more dirty coal and less natural gas usage. U.S. producers are producing a near-record amount of natural gas, and it’s sad that we do not have more pipelines to take advantage of our production.

The Energy Report: Front Loading Barrels
 

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The Energy Report: Front Loading Barrels

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Stephen Fa
Stephen Fa Dec 02, 2022 10:22AM ET
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The long term disaster of Bidenomics unfolding in front of America and the world.
 
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