Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

The Energy Report: Oil Anxiety

Published 06/01/2023, 10:56 AM
Updated 07/09/2023, 06:31 AM

Fear and anxiety continue to drive the petroleum complex as it continues to trade on fears of what may happen as opposed to what is happening now. Oil plunged on fears that there would not be enough votes on the debt ceiling to avoid a US default as well as fears that OPEC and Russia are heading into another oil production war. There are fears of the potential of slowing demand in China even after the country imported a record amount of oil and with refining runs near all-time highs. The other fear is inflation and the debate as to whether the Fed will take a pause on raising interest rates or not against reports that banks are tightening credit.

The oil market speculators are predicting that we are headed into a recession regardless of whether the economic data agrees with them or not. It’s clear the oil trade is looking for the dark cloud in every silver lining. The market is a technical trade and a money game until the market is satisfied and gets some answers from all the worries that has allowed it to ignore the looming supply deficit that is coming unless we see some of these macroeconomic issues become a recessionary certainty.

So do we have a debt deal, or do we not? Reports yesterday the House and Senate had the votes to avoid a default stopped the plunging oil market and caused a rebound. Those hopes helped the market ignore a big snapback in US crude supplies as reported by the API. The report that crude supply rose by 5.202 million barrels only added slight downward pressure. Perhaps because the increase was buffeted with a 2.6 million barrel release from the Strategic Petroleum Reserve and maybe because it was still smaller than the 5.9 million barrel decrease last week. Regardless, optimism on the debt deal seems to allow the oil market to try to make a stand even though it still looks vulnerable to one more wash out.

While there were political tears and gnashing of teeth, if the debt deal becomes a certainty, that should help solidify support for oil. The Wall Street Journal reports that, “The House passed a sweeping bill that suspends the federal government’s $31.4 trillion debt ceiling in exchange for spending cuts, as Republican Speaker Kevin McCarthy muscled through a deal struck with President Biden to avert a looming government default. The 314-117 vote relied on support from both Republicans and Democrats. Passage of the deal sends the measure to the Senate, where leaders have promised quick action, and Biden has said he is eager to sign the measure into law.” So, if they are right then this is one less thing for the oil bears to hang onto.

The tears and gnashing of teeth may be from reporters that are being banned from what may be the most important OPEC Plus meeting in recent memory. There are reports of tensions between Russia and Saudi Arabia over Russian non-compliance to production on cuts and the reason for the reporter ban is raising speculation as to whether OPEC is planning something big at their first in person meeting in 6 months. Reuters, Bloomberg and the Wall Street Journal did not get a golden ticket invitation to attend the OPEC meeting.

No official reason was given, but sources I have spoken to say it is because some OPEC Plus members believe that they have been misquoted and accuse some reporters of having an agenda. Former OPEC advisor and speaker Anas Alhajji said that OPEC & OPEC+ meetings are only for ministers & delegates. Media & analysts do not attend OPEC meetings. They hang around to get information, conduct interviews on the side, & attend the press conference at the end of the meeting. Journalists with no press credentials may not be able to enter the OPEC building.

Yet is OPEC getting ready for another surprise? Reuters is reporting that OPEC and allies are unlikely to deepen output cuts at the June 4 meeting, that they are not invited to. Some believe that the reason reporters are not going to be invited to this meeting is because of the high tension between Russia and Saudi Arabia. Yet I’m hearing from other people that one of the reasons why Saudi Arabia is upset with the Wall Street Journal is that the report of tension between Russia and Saudi Arabia just isn’t true. Others say that Crown Prince bin Salman has been upset with other reports from both Bloomberg and Reuters.

Should OPEC cut production? If you look at oil inventories there is no need to cut output but if you look at prices they had better cut. OPEC is arguing that the price of oil is out of line with the fundamentals in part because of Strategic Petroleum Reserve releases but also warrants that this disconnect between the prices and supply and demand is causing a massive drop in investment that could lead to major shortages in the future. Every major reporting agency sees the world going into a supply deficit in the second half of the year and if we don’t respond to that with more production, it’s only going to get worse unless the economy hits a brick wall.

Reuters reported that OPEC oil fell by 460,000 barrels a day from April to 28.01 million barrels after Saudi Arabia and others pledge voluntary cuts. OPEC quota bound members undershot implied output target by 850,000 barrels a day versus 1.2 million barrels a day in April. OPEC quota bound members with 137% of all pledged cuts in May versus 194% in April.

A lot of talk that gasoline demand was bad over the Memorial Day weekend. Yet if gasoline demand is so bad why is the gasoline crack so strong. Why then are refiners pricing 10.3 million barrels of gasoline a day if demand is so bad. Last week the API reported that gasoline inventories were up 1.891 million barrels and distillate inventories are up 1.849 million barrels.

The Energy Information Administration said they underestimated demand numbers for both oil and gasoline. The EIA raised total US oil demand to 20.449 million barrels a day in March, up from initial estimate of 19.957 million barrels a day up 492,000 b/d.

Electric bills surged even after one of the warmest winters on record. The EIA said that, “Last year had the largest annual increase in average residential electricity spending since we began calculating it in 1984”. EIA notes higher natural gas, coal, and, strangely petroleum, which is nearly not used in the US for an 8% nominal, 5% if you adjust for Biden’s inflation.

The EIA said that

“In nominal terms, the average monthly electricity bill for residential customers in the United States increased 13% from 2021 to 2022, rising from $121 a month to $137 a month. After adjusting for inflation – which reached 8% in 2022, a 40-year high – electricity bills increased 5%. Last year had the largest annual increase in average residential electricity spending since we began calculating it in 1984. The increase was driven by a combination of more extreme temperatures, which increased U.S. consumption of electricity for both heating and cooling, and higher fuel costs for power plants, which drove up retail electricity prices."

Residential electricity customers’ monthly electricity bills are based on the amount of electricity consumed and the retail electricity price. Average U.S. monthly electricity consumption per residential customer increased from 886 kilowatt hours (kWh) in 2021 to 907 kWh in 2022. Both a colder winter and a hotter summer contributed to the 2% increase in average monthly electricity consumption per residential customer in 2022 because customers used more space heating during the winter and more air conditioning during the summer.

Although we don’t directly collect retail electricity prices, we do collect revenues from electricity providers that allow us to determine prices by dividing by consumption. In 2022, the average U.S. residential, retail electricity price was 15.12 cents/kWh, an 11% increase from 13.66 cents/kWh in 2021. After adjusting for inflation, U.S. residential electricity prices went up by 2.5%. Higher fuel costs for power plants drove the increase in residential retail electricity prices. The cost of fossil fuels—natural gas, coal, and petroleum—delivered to U.S. power plants increased 34%, from $3.82 per million British thermal units (MMBtu) in 2021 to $5.13/MMBtu in 2022. The higher fuel costs were passed along to residential customers and contributed to higher retail electricity prices.

In the first three months of 2023, the average U.S. residential monthly electricity bill was $133, or 5% higher than for the same time last year, according to data from our Electric Power Monthly. The increase was driven by a 13% increase in the average U.S. residential retail electricity price, which was partly offset by a 7% decrease in average monthly electricity consumption per residential customer. This summer, we expect that typical household electricity bills will be similar to last year’s, with customers paying about 2% more on average. The slight increase in electricity costs forecast for this summer stems from higher retail electricity prices but similar consumption levels as last summer.

Latest comments

natural gas should we buy small EVERY DIP N ASK ALL TO COLLECT
Great Article . Easy Read with relevant and comprehensive statistical Analysis .
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.