The Energy Report: Fade To Black

Policies matter. Government spending matters and an ill-conceived, short-sighted, politically motivated energy transition hurts the economy and is a major factor in increasing inflation. Demonizing oil companies and appeasing countries like Iran and Venezuela, while trying to use the Strategic Petroleum Reserves as an economic weapon against OPEC, is not a winning energy strategy and the poor and the middle class in America are paying the price.

Oil prices are starting to fade as they look ahead to the end of summer for some gas and diesel price relief. The post-Fourth of July gas price rally that we warned would happen is making the White House nervous as they have played most of their options for reducing prices. The SPR has been emptied and they have already turned a blind eye to Russia and Iran violating sanctions and even attempted to make Venezuelan oil great again by easing up on sanctions.

The Biden administration added US 500,000 barrels to the SPR putting the supply at 348.9 million barrels with a long road ahead before they replenish it but they did succeed it seeing those actions reduce investments in oil and gas rigs in the US.

Rising gas prices are yet another burden on the poor and middle class that have been slapped with inflation caused by massive government spending and money printing and a foolish energy policy. By trying to make US oil and gas companies the enemy and trying to cozy up to Iran and the dictator in Venezuela, it does not seem to be a sound basis for a sustainable energy policy. This especially true if you want rising interest rates that make homes more unaffordable for many Americans and reports that many can’t even keep up with their car payments nor can they afford the rising cost of cars and groceries.

The Wall Street Journal wrote that, “Car Prices Might Be Unsustainable for Buyers/ Surging loan delinquencies signal that many consumers can’t afford their auto loans.”  The Journal writes, “Higher interest rates have made the situation more difficult for buyers. Today’s average new car loan has a monthly payment north of $750, with an interest rate of 9.5%. For used cars, the average rate is above 13.7%, according to Cox. The average term for loans issued over the past three years is nearly six years, according to data from Experian (OTC:EXPGF). These numbers could explain a mystery bedeviling auto lending. Seasonalized rates of severe delinquency for auto loans are the highest since at least 2006, but the jobs market is strong.”

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

The spike in gasoline prices made it harder for the poor and middle class to fill up their tanks and cut back on topping off their tank. Demand for gasoline has eased as prices have soared but even as prices fall the underlying fundamentals for the market continue to suggest that we could be vulnerable to price spikes. US refiners have been running at near-record paces to keep up with global demand and we fully expect to see U.S. oil inventories fall substantially once again this week. U.S. oil refiners will run their plants this quarter at up to 95% of their combined 17.9 million barrel-per-day capacity according to Reuters and there is not any room for error.

The concern about tight supplies and the fact that we find that ours must run at near record pace to keep up with demand is raising concerns that the tropical activity in the gulf could cause another price spike especially as global oil inventories reportedly are at an 8-year low. Tropical Storm Harold has formed in Texas but so far the market feels that it will do little to impact supply and demand movements. Rising bond yields have been negative for oil.

Oil also sold off on hopes of a positive conclusion of talks between Iraq and Turkey to discuss several issues including the resumption of oil exports through the Ceyhan pipeline in the Turkish Mediterranean. Yet it appears this morning that there is no agreement to resume action through that pipeline.

Yet OPEC continues to follow through with their promised production cut. OPEC’s July crude oil production fell to 27.79 million b/d  which was down -900,000 b/d and a  ans a 1and 3/4 year low. Reuters reported that “The ministers discussed oil and energy relations in Ankara, a statement from the Iraqi oil ministry said on Tuesday, but it did not say whether a resumption of exports via the Ceyhan oil terminal was discussed. Turkey halted Iraq’s 450,000 barrels per day (bpd) of exports – roughly 0.5% of global supply – through the northern Iraq-Turkey pipeline in March after an International Chamber of Commerce arbitration ruling.” It is interesting to note that Iraq’s oil demand rose to an all-time high.

Diesel supplies are tight even as we may have seen a short-term peak from record refining cracks. But as Macquarie points out that the market is preparing for Europe’s first winter without Russian gasoil. They say that the market is clearly still worried about the Euro natural gas situation. The severity of 23/24 northern hemisphere winter will largely drive positioning further down the curve. New Refinery capacity coming online has yet to make a difference in US/Europe.

The BBC reported that the prospect of a possible strike at a liquefied natural gas (LNG) plant in Australia has pushed wholesale gas prices up in Europe. The Offshore Alliance union warned that a strike at the Northwest Shelf facility could start as early as 2 September if no deal on pay is reached. Benchmark gas prices for the EU and UK rose around 10% on Monday, according to Bloomberg. Prices soared after Russia’s invasion of Ukraine but have since fallen. There are fears that strike action at Woodside (OTC:WOPEY) Energy Group’s Northwest Shelf facility could cause disruption to shipments of LNG from Australia, which is a key global supplier.

In the US natural gas production did fall slightly to 101.7 BCF’s from 101.8 BCF’s in July the bullish case is going to be dependent on the weather. We suggest putting on bullish strategies for the winter. A price spike could happen if this winter is more of an abnormal winter. The pre-shoulder season is the time to hedge.