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The Energy Report: Supplying the World

Published 04/25/2024, 09:38 AM
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While the US oil and gas industry continues to get bashed by the Biden administration, the reality is that the US oil and gas industry is providing supply stability to the global economy. US petroleum exports hit 12,094 million barrels a day which is an all-time record high but gasoline demand in the US is tepid at best. Still, global economic growth continues to suggest that global oil demand will break records next month and if that demand is going to be met, it will be because of the efforts of the US oil and gas industry.

The Energy Information Administration (EIA) reported the first US crude draw in 5 weeks, and it was a whopper, down 6.4 million barrels to 453.6 million barrels, in what may be the first of many. Gasoline demand though continues to be weak in a sign that consumers are feeling the pain of inflation as the demand over the last four weeks averaged 8.7 million barrels a day, down by 3.7% from the same period last year.

Yet gasoline inventories still fell by 600,000 barrels from last week and are about 4% below the five-year average as we exported 778.000 overseas. Distillate fuel inventories did increase by 1.6 million barrels last week and are about 7% below the five-year average for this time of year.

The world is becoming more reliant on the United States energy producer to fill the void in the global market that was partly created by bad energy policy in Europe that led to the war in Ukraine. And there are open worries from our trading partners that Biden’s policies in restricting production and by pausing liquefied natural gas exports terminals, is going to leave our trading partners and the global economy in a precarious state.

This comes as we are seeing warnings that the geopolitical risk factors surrounding oil and gas have not gone away and warnings from trading partners in Europe that the natural gas crisis may reappear next winter. The tightening supply situation comes against high anxiety and geopolitical risk factors that may get worse before it is better. Bloomberg reports that, “European Gas Traders Are Already Worrying About Next Winter and that Gas capacity deals at Russia-Ukraine border set to end and that Next winter gas is trading at a premium to all other contracts. They write that, “While demand remains muted and the region exited the heating season with the highest stocks on record, industry players gathering at the Flame conference in Amsterdam this week see risks mounting. And prices are responding. Worries include uncertainty over remaining Russian flows through Ukraine and rebounding gas demand in Asia. A colder-than-normal winter spurring consumption at home is also seen as more likely after two consecutive mild ones. The concerns are showing up in the futures market. The contracts for next winter are the most expensive on the curve.

A Rigzone report says that,

“Recent reports indicate that Iran intends to disrupt operations in the Strait of Hormuz",

Dryad Global stated in its latest Maritime Security Threat Advisory (MSTA), which was released on April 22 that,

“The most recent incident, the seizure of the MSC Aries, demonstrates that Iran, despite being preoccupied with missile operations against Israel, continues to interdict and control vessel movement in the Strait of Hormuz, Persian Gulf, and the Arabian Sea”.

Of course, the Biden administration despite their policies that make oil and gas prices go higher, continues to insist they want to do things to get prices lower and we must admit that maybe they’ve succeeded in one area and that area would be Venezuela. Bloomberg reported that, “Chinese refiners are paying a little less for Venezuelan oil after the US reimposed sanctions on the South American producer. Merey crude, often used to make bitumen to pave roads in China, traded at a discount of $14 a barrel to ICE Brent in recent days on a delivered basis, according to traders. That compares to $11 before sanctions were reinstated last week, and $8 at the start of the year. China’s likely to draw more barrels from Venezuela after the US discontinued its six-month sanctions waiver, as other buyers, including India, shun embargoed oil to avoid run-ins with Washington. An average of 130,000 barrels a day previously bought by Indian refiners and 174,000 barrels a day of US-bound shipments could now be redirected to the world’s biggest crude importer, according to data intelligence firm Kpler.”

Reports of fires at refineries in Russia and Mexico are other reasons to be bullish for oil and products and we are not the only ones that are predicting record demand. Standard Chartered (OTC:SCBFF) just put out a note that said that they expect that global oil demand will pick up strongly in May and June and will exceed 103 million barrels a day for the first time in May.

Once again, the preponderance of evidence continues to suggest there is a significant risk of upside price movements in crude oil, gasoline, and diesel over the coming weeks. We do think we’ll see a bounce back in US demand for gasoline when the weather starts to warm up, but the global demand will continue to keep US supplies very tight. Our global partners continue to be astonished how the United States it’s continuing to make politically motivated decisions to appease the environmental base while the global economy hangs in the balance.

Sure, you can contact me to find ways to hedge and trade this coming crisis. The commodity Supercycle is coming into play once again and copper recourse is one of the markets that we have to keep a real close eye on. Bloomberg reported that, “BHP Group Ltd. proposed a takeover of Anglo-American Plc that values the smaller miner at £31.1 billion ($38.9 billion), in a deal that would create the world’s top copper producer while sparking the industry’s biggest shakeup in over a decade. The No. 1 mining company proposed an all-share deal in which Anglo would first spin off controlling stakes in South African platinum and iron ore companies to its shareholders before being acquired by BHP. The total per-share value of the non-binding proposal is about £25.08, BHP said, a 14% premium to Anglo’s closing share price on Wednesday. A tie-up with Anglo would give BHP roughly 10% of global copper mine supply ahead of an expected shortage that many market watchers have predicted will send prices soaring.”

We do have natural gas inventories today and we’re expecting to see an injection of 85 BCF. The industry is going through some significant challenges domestically. The Biden administration needs to start signaling to the world that we are going to continue to be the world’s largest liquefied natural gas exporter. We need to stop playing politics with US energy and get back to reality that natural gas is going to be the best way to reduce greenhouse gas emissions in emerging markets along with increase use of nuclear power.

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