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The Energy Report: Throwing a Flag Day

Published 06/14/2024, 09:32 AM
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It’s Flag Day today and what better day to point out that OPEC called a penalty flag on the International Energy Agency IEA calling their peak oil demand narratives dangerous for consumers and could lead to unprecedented pain. That was a warning given by OPEC sec-gen Haitham Al Ghais about the recklessness of the IEA that could lead to unprecedented shortages because of the lack of investment that was made by an agency that while calling for peak demand in the future, had to raise its oil demand projections across the board.

Oil Analyst Giovanni Staunovo on the IEA oil market report: Something which went unnoticed, demand level upward revisions 2022 is now at 100.11 from 99.81 mbpd one month ago 2023 is at 102.24 from 102.09mbpd one month ago 2024 is at 103.20 from 103.16mbpd one month. The IEA has been so wrong about their projections of future demand, even having to back off previous peak demand calls as well as calls to stop all investment in fossil fuels.

So, OPEC called them out. Haitham Al Ghais who became OPEC Secretary General said, “We have also heard similar types of narrative before. Ones that have proven to be wrong. Ghais points out that, “The IEA suggested that gasoline demand had peaked in 2019, but gasoline consumption hit record levels in 2023, and indeed continues to rise this year. It also stated that coal demand had peaked in 2014, but today coal consumption continues to hit record levels.

Ghais said that, “Many net zero futures focus almost exclusively on replacing hydrocarbons, which make up more than 80% of the global energy mix today. Rather than adding new energy sources to the mix, the focus is on substituting energy sources, which flies in the face of the history of supplying energy to the world. The emphasis is on rhetoric over reality, and constraint over consumer choice. Ghais says that “Today, wind and solar supply around 4% of global energy, with electric vehicles (EVs) having a total global penetration rate of between 2% and 3%, even though the world has invested over $9.5 trillion in ‘transitioning’ over the past two decades.”

He also says that OPEC welcomes all the progress made in renewables and EVs, but it is nowhere near close enough to replace 80% of the energy mix. Furthermore, electricity grids, battery manufacturing capacity and access to critical minerals remain major challenges. We should also remember that the development of renewables and EVs require some oil-related products. Their future expansion will add to oil demand.

Someone might want to tell Transportation Secretary Pete Buttigieg that. Biden’s so-called landmark 2021 infrastructure legislation included 7.5 billion dollars to fund 500,000 electric vehicle chargers, but just eight chargers were built, which if you do the math costs about 937.5 million per charger. Ok, to be fair, they do have plans to build more but because of the way they wrote the law when it comes to building charging stations, white people need not apply.

The Free Beacon wrote that, “White House ‘Equity’ Requirements Holding Back EV Charging Station Construction, Internal Docs Show. “The Beacon wrote that, “internal memos from the Department of Transportation obtained by the Washington Free Beacon, as well as interviews with those who are responsible for overseeing the implementation of the electric vehicle charging station project, say the delay is in large part a result of the White House’s diversity, equity, and inclusion initiatives. “These requirements are screwing everything up,” said one senior Department of Transportation staffer who spoke on the condition of anonymity. “It’s all a mess.”

The Beacon says that Biden wants quicker action, but they say he has only himself to blame. “Shortly after taking office, the president signed an executive order mandating that the beneficiaries of 40 percent of all federal climate and environmental programs should come from “underserved communities.” The order also established the White House Environmental Justice Advisory Council, which monitors agencies such as the Department of Transportation to ensure the “voices, perspectives, and lived realities of communities with environmental justice concerns are heard in the White House and reflected in federal policies, investments, and decisions.”

In order to qualify for a grant, applicants must “demonstrate how meaningful public involvement, inclusive of disadvantaged communities, will occur throughout a project’s life cycle.” What “public involvement” means is unclear. But the Department of Transportation notes it should involve “intentional outreach to underserved communities.” That outreach, the Department of Transportation states, can take the form of “games and contests,” “visual preference surveys,” or “neighborhood block parties” so long as the grant recipient provides “multilingual staff or interpreters to interact with community members who use languages other than English.” “This all just slows down construction,” says Jim Meigs, a senior fellow at the Manhattan Institute who focuses on federal regulation. “These ‘public involvement’ requirements are impossible to quantify and even open builders up to lawsuits by members of the community where an electric vehicle charging station is set to be constructed.”

How these equity requirements are relevant to the construction of a single electric vehicle charging station is unclear, Meigs said. But all applicants for federal funding must in many cases submit reports that can total hundreds of pages about how they will pursue “equity” every step along the way. This leads to delays and increases costs throughout the construction process, one senior Department of Transportation official told the Free Beacon. “Highly Qualified” applications, internal memos state, must “promote local inclusive economic development and entrepreneurship such as the use of minority-owned businesses.”

Getting back to oil, it seems their products are leading the oil market back higher. A big spike in diesel and a lesser spike in gasoline is churning momentum more positive to end the week. While the Biden administration has been hopeful about falling gasoline prices in the Midwest, we just can’t get a break.

Barbara Powell at Bloomberg wrote that, “BP’s Whiting, Indiana, refinery plans to conduct a turnaround beginning late July on the 255k b/d  Pipestill 12 crude unit and the largest coker, people familiar with operations said. The work on the largest of three crude units and its 95k b/d  companion coker is scheduled to extend into early September with additional days needed to restore operations to normal. The turnaround was originally scheduled to begin in early September and run for 2 months  No reason was given for advancing the work  The last turnaround for Pipestill 12 occurred in September and November 2018  The crude unit was converted in 2013 to process mostly heavy Canadian oil.* The shutdown of the biggest crude unit, coming in the middle of the summer gasoline season, could tighten Midwest fuel supplies, sending regional gasoline prices higher at the pump and margins higher.

John Kemp pointed out that U.S. oil refineries had been processing petroleum at the fastest rate for the time of year since before the pandemic, but rising fuel inventories have begun to weigh on crack spreads and likely signal a slowdown ahead. Refineries processed 17.5 million barrels per day (b/d) of crude and other feedstocks over the week ending on June 7, the fastest seasonal rate since 2018, according to data from the U.S. Energy Information Administration (EIA).  Refineries were employing 95% of their operable capacity, up from 94% last year, and the highest percentage since 2019, weekly data from the EIA show.

But intensive processing produces more gasoline and diesel than is being used domestically and exported – resulting in a persistent accumulation of stocks. The inflation-adjusted 3-2-1 crack spread is now exactly in line with the average for the 10 years before the pandemic, indicating the fuel market is comfortably supplied. Now with the Whiting refinery being down, maybe that will change that scenario just a little bit.

Crude oil demand numbers have been impacted by what is called the Costco (NASDAQ:COST) effect. Local gas stations see less activity as more people go to Costco to fill their gas tanks when inflation is high. Some people are saying the Costco effect for one of the reasons why the gasoline demand numbers seem to be skewered to the downside.

Natural gas prices have pulled back after an incredible run of hot weather. The market is also concerned about a heat zone but also about what’s happening down in the Gulf of Mexico. Fox Weather is reporting that The National Hurricane Center (NHC) is monitoring a second potential tropical disturbance that could form over the weekend across the southwestern Gulf of Mexico. The first area of interest, Invest 90L, is now in the Atlantic. “Environmental conditions appear conducive for gradual development of this system, and a tropical depression could form during the early or middle part of next week while it moves slowly westward or west-northwestward,” the NHC said in its latest outlook Thursday evening of the action across the Pacific and the Bay of Campeche in southern Mexico. Download the Fox Weather App to watch this.

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