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The Energy Report

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


Power Hungry. The Energy Report 07/27/20211

The U.S. has gone power-hungry, consuming record and near-record amounts of gasoline and natural gas. Yet at the same time, we're having issues meeting demand. Fuel shortages and the lack of qualified oil tank truck drivers, are causing shortages at airports. The situation has got so bad that American Airlines is asking pilots to conserve fuel. Some planes will have extra fuel because they are afraid that when they land at the airport, there may not be enough fuel to allow for the turn around trip. Bloomberg reported that American and Southwest Airlines Co. are carrying extra jet fuel on some flights and considering adding stops to other routes to pick up fuel, as snarls in U.S. trucking and supply chains delay deliveries to small and mid-sized airports across the country.

Reuters reports that the Texas power grid operator on Monday forecast demand would reach a record high over the next week as homes and businesses crank up their air conditioners to escape a heatwave settling over the state. It is not just the U.S.. Javier Blas reports that European natural gas prices hit fresh highs after a brief retreat earlier this month. In the UK, NBP gas has jumped to its highest level in more than 15 years. In continental Europe, Dutch TTF is very close to setting a new record high.

While a lot of these issues are related to the weather, the pandemic and the reopening, there is also bad government policy as a factor in these shortages. Get ready for a world of less reliability and more shortages as we speed into a fossil fuel transition and our economy is going to feel the pain. With Biden's and some state's rigid energy plans, they are going to put the U.S. at more of a disadvantage to other countries and make us less competitive.

Especially when it comes to computer games. The Register reports that Dell is no longer shipping energy-hungry gaming PCs to certain states in America because they demand more energy than local standards allow. Customers seeking to purchase, for example, an Alienware Aurora Ryzen Edition R10 Gaming Desktop from Dell's website and have it shipped to California are now presented with a message that tells buyers they're out of luck. "This product cannot be shipped to the states of California, Colorado, Hawaii, Oregon, Vermont, or Washington due to power consumption regulations adopted by those states," the website says. "Any orders placed that are bound for those states will be canceled," Dell confirmed to The Register that the California ban was down to power consumption regulations, saying:

Yes, this was driven by the California Energy Commission (CEC) Tier 2 implementation that defined a mandatory energy efficiency standard for PCs – including desktops, AIOs, and mobile gaming systems. This was put into effect on July 1, 2021. Select configurations of the Alienware Aurora R10 and R12 were the only impacted systems across Dell and Alienware.”

Despite all the drama, oil futures are in a pretty tight trading range but holding pretty solid. The market seems to have overcome the sharp correction down to $65.00 and now is trying to break back out above the $72.48 area. We fully expect that we should break out to the upside above that 7248 area and if we do, we're probably going to be on track to make new contract highs. The problem right now seems to be the delta variant of the coronavirus, which is holding the market back even though all the evidence right now suggests a dramatic tightening of supplies. The oil market is still hesitant to go further until we ease concerns about the coronavirus and this new delta variant. And while the delta variant may impact demand at some point, we're not really seeing a lot of evidence of that right now. In fact if the delta variant is having any impact on demand, for this moment it's only cooling off a demand that is already strong. It's hard to separate how much demand destruction there is because the demand growth is so strong. In this situation, I would be prepared for some upside price risk.

We're not seeing much science and demand destruction for gasoline even as prices have leveled out of a national average somewhere around $3.15 a gallon. The market is still trying to adjust near record-breaking demand at a time when there is reduced refining capacity. U.S. energy production is less than it was the last time demand was this high.

RBOB gasoline and distillate fuel futures are looking very solid as well. We already talked about the shortages of supplies at airports for jet fuel that is covered in the distillate category. Part of it is transportation issues but part of it is supplies that are below average for this time of year.

The market is going to take its cue from the American Petroleum Institute supply report tonight we expect to see substantial drawdowns in Cushing, Oklahoma as well as the overall crude supply. Both gasoline and diesel should drop. Demand is strong, supplies are tight and we should continue to see supply fall below the five-year average.

The natural gas market is speaking for itself. Record power generation is driving prices up. We already are facing a storage deficit for natural gas as supplies are 16.6% below last year and 6.29% below the five-year average and with the heatwave, we probably are going to see that storage deficit widened dramatically in the coming weeks. Longer-term outlook for the weather is very bullish for natural gas. Bret Walts at Banwx says that Iowa has barely seen any rain the last 10 days, with surrounding areas running less than 1". Combine that with near record-breaking heat and by Wednesday conditions are going to be drying out quickly. This is going to have a major impact on grain prices as we are at the critical development stages for corn. It's probably a good thing that the Biden administration is allowing less corn in our gas tanks but at the same time, it doesn't take away from the fact that we're seeing one of the tightest markets in corn that we've seen in many, many years.

There is a substantial risk of loss in trading futures and options.

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. PFGBEST, 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.

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.

Contact Phil at 1-888-264-5665 or pflynn@pricegroup.com.