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The Energy Report: The Drain Game

By Phil FlynnCommoditiesAug 12, 2022 09:02AM ET
www.investing.com/analysis/the-energy-report-the-drain-game-200628438
The Energy Report: The Drain Game
By Phil Flynn   |  Aug 12, 2022 09:02AM ET
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There is a lot of market talk about Asia buying up cheap barrels of U.S. crude because the spread between WTI and Brent prices are wide. The reason the U.S. West Texas prices are lower is that Biden decided to release a record amount of oil from our SPR while Saudi Arabia raised prices. The plan from Saudi Arabia may be to encourage the U.S. to drain their inventories so that they will have greater control over global oil prices when supplies are tight.

It seems that, if that was the plan, it is working. Now, instead of signaling to the market that they would give in to Biden’s wish to raise production, it appears they are laying the groundwork for a future production cut because they are predicting that the oil supply will flip from a deficit to a surplus giving them the justification for a future oil production cut. OPEC forecasts it can reduce the amount of crude it will need to supply in the third quarter by 1.24 million barrels a day to 28.27 million.

If that is the case, the Saudis have gamed the U.S. president and have given the Saudis and their favorite co-conspirator Russia more control over energy prices and food prices and inflation in general. It will also make the United States more vulnerable economically as well from a national security standpoint.

Biden’s SPR releases are going to be ending in October, so when the winter demand season kicks up, will the U.S. be adequately supplied? As we pointed out yesterday, in the United States, we are below average in every major category of petroleum supply. To remind you of the numbers: crude oil supplies are 5% below the five-year average. Even with the record drain from the global strategic petroleum reserve, SPR inventories, for their part, are still at the lowest level since 1985.

Distillate inventory supplies are a whopping 24% below the five-year average. Gasoline supplies are about 6% below the five-year average. These are not comfortable numbers going into winter and are going to add to the upside risks in price.

Oil prices got bounced off the reports that shell had to close down a huge percentage of Gulf of Mexico oil production because of a pipeline issue. Reuters reported that: Top U.S. Gulf of Mexico oil producer Shell (LON:RDSa) said on Thursday it halted production at three U.S. Gulf of Mexico deepwater platforms after a leak shut two pipelines connecting the platforms, adding it expected pipeline service to resume on Friday.

A failure at an onshore pipeline junction in Louisiana leaked about two barrels of oil, said Chett Chiasson, executive director of Greater Lafourche Port Commission. A fix is expected to take about a day, he added. A Shell spokesperson said the leak, approximately two barrels of oil, has been contained and the company expects the Mars and Amberjack pipelines to return to service on Aug. 12. Shell said its Mars, Ursa, and Olympus platforms were shut because of the leak. The three are designed to produce up to 410,000 barrels of oil per day combined, according to data on the company’s website.

Prices for Mars sour crude strengthened to trade at a 50-cent a barrel discount to U.S. crude futures. The grade has seen volatile trading as it competes with sour barrels released from the U.S. Strategic Petroleum Reserve domestically and with cut-priced Russian Urals barrels in international markets.

Oil dipped this morning on a report that Russia’s Transneft said that Ukraine confirmed receiving the payment for Russian oil transit via the Druzhba pipeline. That means another good day for the ruble. Putin Is making the ruble great again.

Reuters is reporting that a European Union proposal to revive the 2015 Iran nuclear deal “can be acceptable if it provides assurances” on Tehran’s key demands, the state news agency IRNA said on Friday, quoting a senior Iranian diplomat. The E.U. said on Monday it had put forward a “final” text following four days of indirect talks between the U.S. and Iranian officials in Vienna. A senior E.U. official said no more changes could be made to the text, which has been under negotiation for 15 months. He said he expected a final decision from the parties within a “very, very few weeks.”

Natural gas surged yesterday to close at $9 before pulling back from key resistance. Reuters said talk of increased gas flows to the Freeport liquefied natural gas export plant in Texas, which shut in June, a drop in gas output, and forecasts for more demand over the next two weeks than previously expected. Officials at Freeport said the company was still using the gas to feed a power plant that was generating electricity for the Texas grid. Freeport has been pulling in gas to feed the power plant since around mid-July.

The natural gas we knew. It was only a matter of time before we would see the favorable market resume because Freeport would not be down forever. Even though European supplies are built up ahead of winter, the demand for LNG exports is going to continue to be at maximum capacity around the world. U.S. natural gas inventories yesterday also came in strong but not enough to convince the market that we are going to have adequate supplies going into winter.

The Energy Report: The Drain Game
 

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The Energy Report: The Drain Game

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Comments (2)
Mohd Izhar Muslim
Mohd Izhar Muslim Aug 14, 2022 8:25AM ET
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Thank you for sharing the article 💯
Royce Murph
Royce Murph Aug 12, 2022 10:17AM ET
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Good article, states facts.  Much appreciated
 
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