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The Energy Report: Poetic License

By Phil FlynnCommoditiesOct 28, 2021 01:55PM ET
www.investing.com/analysis/the-energy-report-poetic-license-200606679
The Energy Report: Poetic License
By Phil Flynn   |  Oct 28, 2021 01:55PM ET
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Crude oil prices are taking it on the chin after supplies surprisingly increased against the backdrop of the reality that oil prices, in the shoulder season, might be just a bit ahead of themselves. The potential resumption of Iranian talks and a massive crude supply increase on the Gulf Coast had oil and products retest after failing to defend the 10-day moving average that had proven to be the major crude oil support point for a month. Oil and product hedgers should pray for a big correction as this may be your last best chance to get hedged up for winter. While the short-term situation looks a bit toppy, historically low supplies at the Cushing, Oklahoma, delivery point will ultimately support prices.

Running on empty! Trying to explain the Cushing, Oklahoma, draw to a wide audience, I told a reporter that, “refiners are drawing down on Cushing at a pretty incredible pace right now. We’re getting close to empty.” I was called out by an energy expert, the renowned Art Berman, who tweeted: “Seriously, @EnergyPhilFlynn? Not close to empty. Seriously, @EnergyPhilFlynn? Not close to empty.”  Art Berman is an energy legend, and he is right. I told him the term “empty” was used with a bit of poetic license. I meant that at the rate crude supplies are falling in Cushing, Oklahoma, we might soon fall below what is known as the minimum operating levels to keep the system and pipelines flowing. The verbiage was used trying to explain that to a wide audience.

Cushing, OK, supply fell last week by a whopping 3.9 million barrels, the largest draw since January. Cushing stocks have dropped 6.5MB over the past five weeks putting supply at the delivery hub at 27.3 million barrels. Some estimates believe that the delivery hub needs supply to stay above 20 million barrels to stay operational. So my point was that if we continue to draw at this incredible pace, and I believe we might, next month the hub might be at the minimum level.

Yet, the focus on the trader in the overbought crude market was overall inventories. The EIA reported that, “Crude oil inventories rose by 4.3 million barrels last week. Yet, gasoline supply fell by 2 million barrels, bringing it to the lowest level in almost four years. Still, gasoline demand took a sharp weekly drop raising fears that sharply higher prices are causing consumers to cut back. Of course it was the opposite last week when gasoline demand seemed to be very strong.

The EIA reported that, “U.S. crude oil inventories are about 6% below the five-year average for this time of year. Total motor gasoline inventories decreased by 2.0 million barrels last week and are about 3% below the five-year average for this time of year. Finished gasoline inventories remained unchanged while blending components inventories decreased last week. Distillate fuel inventories decreased by 0.4 million barrels last week and are about 8% below the five-year average for this time of year. Propane/propylene inventories increased by 2.0 million barrels last week and are about 15%below the five-year average for this time of year. Total commercial petroleum inventories increased by 4.4 million barrels last week. Total products supplied over the last four-week period averaged 20.8 million.

Scott DiSavino and Noah Browning of Reuters reported that Saudi Aramco (SE:2222) said oil-output capacity across the world is dropping quickly and companies need to invest more in production. Some One Tell Joe Biden!

Bloomberg News reports that, “U.S. refineries are enjoying the highest profit margins to turn crude oil into gasoline in four years for this time of the year, as demand for the fuel jumps. The Western world’s biggest oil companies likely just generated more cash than at any time since the Great Recession, and investors are about to find out what they’ll do with it.

Successful Farmer reported that, “the fertilizer index hit record highs which threaten higher food prices. The Archer Daniels Midland (NYSE:ADM) Chief Executive Officer stated on Tuesday that fertilizer continues to be available for farmers, but only at a higher price. He added that it wasn’t yet clear whether U.S. farmers will switch to soybeans from more fertilizer-intensive corn. He suggested that the numbers today are a little bit of a toss-up for the farmer. The fertilizer index hit record highs which threatens higher food prices. The Archer Daniels Midland Chief Executive Officer stated on Tuesday that fertilizer continues to be available for farmers, but only at a higher price. He added that it wasn’t yet clear whether U.S. farmers will switch to soybeans from more fertilizer-intensive corn. He suggested that the numbers today are a little bit of a toss-up for the farmer.

Natural gas soared as winter is approaching. A global shortage caused by short-sighted politicians is to blame. This Halloween will be very scary as it is the kickoff for the UN COP26 climate summit in Scotland! Scream!

The Energy Report: Poetic License
 

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The Energy Report: Poetic License

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Comments (2)
Steven king
Steven king Oct 28, 2021 9:44PM ET
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I always look forward to your articles. A refreshing read .. Thanks again ..
André Uruguay
André Uruguay Oct 28, 2021 9:34PM ET
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Phil, just a thumbs up: text was doubled in the second last paragraph.
 
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