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The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn@pricegroup.com


A Real Pain in the Gas. The Energy Report 05/26/2022

The US is experiencing gas pains in one form or another. Not only did the retail gas price hit an astounding $4.60 a gallon the natural gas market went parabolic trading over $9.00 MMBtu for the first time since 2008. The moves reflect poor energy policy at the impact of bad energy decisions and the Environmental, Social, and Governance (ESG) push that has succeeded in shutting down refineries and natural gas production and pipelines by sucking out an investment that is causing real pain for consumers not to mention the global economy.

US petroleum supply and demand numbers from the Energy Information Administration (EIA) suggest that things will get worse before they get better putting more hurt on consumers that are already bearing the burden of inflation taking away more of their hard-earned money. In the meantime, the supplier in Europe is tightening, and talking that the UK will pout in windfall profit taxes on energy companies will only further tighten supply. Reports that Russian Deputy Prime Minister Alexander Novak pic specs 2022 oil output to fall by 480 Chu 500 million tons down from 524 million tons in 2021.

The reaction by Governments is more bad policy. UK a windfall profit tax and in the US an oil and product export ban. Yesterday Javiar Blass at Bloomberg pointed out that “ US total crude and refined products gross **exports** are on fire, surging above 10.5 million b/d for the 2nd only weekly period ever. The US is truly the barrel of oil and the last resort for the global economy.

This comes as US gasoline prices hit yet another record high. Triple AA reported that the National Average hit $460 a gallon. It was reported that “High gas prices are changing driving habits among Americans, according to a recent Yahoo/Maru Public Opinion survey from April 29-May 1, 2022, among a random selection of 1,392 U.S. drivers. Two-thirds, or 66% of vehicle owners or households, say they have made or will make significant changes to their driving patterns if the national average cost of gasoline sits between $4.12-4.35 per gallon. The AAA national average in the U.S. currently sits at $4.28 per gallon. The remaining group of respondents (34%) say they will not likely change their driving/vehicle use habits until the price is approximately $5.00 per gallon. Some areas of the nation, such as California and Nevada, already exceed that average. The survey highlights the pinch consumers are facing because of higher energy costs. This line stood out – The remaining group of respondents (34%) say they will not likely change their driving/vehicle use habits until the price is approximately $5.00 per gallon.

Demand on a four-week rolling basis has hit its lowest level during this time of year since 2013, excluding the pandemic-outbreak period in 2020, according to data from the Energy Information Administration compiled by Bloomberg. Compared with year-ago levels, demand is down roughly 5%.price average stood at $4.123.

How Is the Biden Administration reacting to this? Well, at least President Biden told us that this is all about the ‘Incredible energy Transition. That he thinks is going to make us stronger in the long run. Yet in the short term, he is reaching out to Venezuela and Saudi Arabia to produce more oil. Yesterday it was reported that President Biden’s advisers Brett McGurk & Amos Hochstein are on a secret visit to Saudi Arabia for talks about increasing oil production, the red sea islands deal, and normalizing relations with Israel. The President may even talk to Saudi Crown Price Salman and visit Saudi Arabia. This is to make up for the strategic blunder of not dealing with Saudi Arabia professionally. We should point out that it was under President Trump that Saudi Arabia recognized Israel.

Bloomberg Reports that “Boris Johnson’s government will impose a so-called windfall tax on the profits of oil and gas companies to help fund support for Britons facing a cost-of-living crisis. The 25% levy on energy firms will raise about £5 billion ($6.3 billion) which will finance one-off grants of £650 to more than 8 million of the poorest households in the UK, Chancellor of the Exchequer Rishi Sunak said in the House of Commons on Thursday. Sunak did not rule out also applying the windfall tax to power generators, though he said more work needs to be done on the idea.” Shortages to follow.

The EIA report was bullish. Oil industry expert Tim Dallinger writes that “Crude drew 1.0 MMB. Gasoline drew 0.5 MMB. Distillates are built by 1.7 MMB. Total commercial inventories increased 0.7 MMB week-on-week. Refinery input increased a massive +334 kbd. This is 2022 high and approaching 2021 high. Gulf coast, Padd, is running hard. End-user demand proxies were disappointed. Prompt WTI is trading at $110. This is near the estimated fair value. The broad market continues to struggle. Energy is the only sector currently up on the year. Selling in the short term is likely overdone. However, the Fed will continue to raise interest rates and reduce its balance sheet to fight inflation. The US and the world in general look to be headed into recession if not there already. This will impact energy demand. However, it’s a race between demand destruction and supply limitation. The world is almost out of spare capacity. Tim says that the 6 MMB SPR release. It’s unclear why it wasn’t the scheduled 7 MMB. SPR release is scheduled to continue at this rate through October. There has been some talk about the ineffectiveness of the SPR release. While it hasn’t brought down the price, imagine where the world would be had the US not released 60 MMB of crude.

Natural Gas made the front page of the Wall Street Journal so you know from a price standpoint that is not good. The Wall Street Journal wrote “Natural-gas prices are heating up ahead of the air-conditioning season, adding pressure to household budgets and manufacturing costs. Futures for June delivery reached $9.399 per million British thermal units on Wednesday before ending at $8.971, up roughly 2% on the day and more than 20% this month. Prices have tripled over the past year and haven’t been so high since 2008, which was before frackers flooded the market with cheap shale gas.

The Journal points out that natural gas has been a major driver of inflation, and lately prices have been accelerating. In addition to heating and cooling, gas prices factor into the cost of producing electricity, fertilizer, plastic, cement, steel, and glass. Profits are being pinched at businesses ranging from beer-box makers and wallboard manufacturers to bitcoin miners, and higher costs are trickling down to prices for consumers and putting pressure on the Federal Reserve to raise interest rates. Fuel traders and analysts say prices could climb even higher if hot weather arrives and air conditioners are cranked up before enough gas can be injected into storage facilities ahead of winter when the fuel is burned for heat.

U.S. gas inventories on May 13 were about 15% lower than the five-year average, according to the Energy Information Administration. The EIA is scheduled on Thursday morning to report inventory data through last week. Inventories have been whittled down by strong demand for liquefied natural gas among European buyers replacing Russian gas and domestic drillers who have been slow to increase production despite the highest prices in years. Meanwhile, the highest Appalachian coal prices ever and reduced hydropower due to drought in the U.S. West have boosted demand for electricity generated by burning gas according to the Journal. We could see gas prices level out after the holiday. Keep an eye out for a July crude oil squeeze.



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Phil is one of the world's leading energy market analysts, providing individual investors, professional traders and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline and energy markets. Phil's market commentary, fundamental and technical analysis, and long-term forecasts are sought by industry executives, investors and media worldwide.

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Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

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