Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
It must be frustrating for the Biden administration that all of the policies that they put in place to try to reduce America’s dependence on oil and gas are helping build back Big Oil and build it back better. The reopening of the economy, as well as reductions in oil and gas investment, is driving up oil and gas prices making their product rarer and more expensive and a lot more lucrative.
Shell blew away market expectations with a stock buyback, raising dividends and other oil companies are having similar success in the Joe Biden anti-oil era. Reuters reported that Chevron Corp (CVX.N) on Friday reported its highest profit in six quarters and joined an oil industry stampede to reward investors with share buybacks, as rebounding crude oil prices carried earnings and cash flow to pre-pandemic levels. Oil and gas production earned $3.18 billion in the quarter ended June 30, compared with a loss of $6.09 billion a year ago. The second-largest U.S. producer sold its U.S. oil for $54 a barrel last quarter, compared with $19 a year earlier. Total oil and gas production rose 5% over a year ago to 3.13 million barrels per day. Its refining operations generated an $839 million profit compared with a loss of $1.01 billion a year ago. U.S. operations accounted for the vast majority of the operating profit as Asia units suffered from weak margins. Reuters says that Chevron joined Royal Dutch Shell (RDSa.L), Total Energies (TTEF.PA), and Equinor (EQNR.OL) in resuming share buybacks as a means of rewarding investors.
Big Oil Investors are saying, Thanks, Joe Biden. He may be the best thing for the big oil companies’ bottom lines that they’ve had in years. U.S. consumers are struggling with gasoline prices that surge back to $3.168 a gallon. In California they are already paying an average price of $4.356 a gallon. There are only 15 states in this great union that are below $3 a gallon.
The Wall Street Journal, in an opinion piece, said that, “Energy Secretary Jennifer Granholm is also a big winner. She’ll run a green venture capital fund rivaling Kleiner Perkins with tens of billions to throw around at carbon capture, hydrogen, electric flying taxis, buses, and high-speed mass-transit hyperloop. She will also be in charge of creating a “smart” grid with no less than $73 billion for transmission lines and batteries to back up heavily subsidized wind and solar power.” There does not seem to be a mention of money for airports.
Also, it is unclear that all of that spending and all of those billions will cut into oil demand. Building all of that green infrastructure will take a lot of oil and natural gas. We won’t even get into the fact of electrifying the entire nation’s automobile sector. That is going to take a lot of energy to charge cars and the rare earth minerals that you have to find to make it happen. In fact it will take hundreds of thousands of miles for these electric cars to get to a point where they are helping the environment and not hurting the environment.
For oil, we continue to maintain our bullish outlook. We still believe that you need to be hedged and we’re in the buy the dips mode. Technically the markets broke out to the upside. The biggest thing we have to fear right now is profit-taking ahead of the end of the month. Other than that it looks like all systems are go for a retest of the old highs and we expect that we could take those out. Gasoline demand continues to be solid despite these high prices. The RBOB market has been struggling a little bit compared to heating oil. For crude oil, that may be due to the amount of imports. Expectations are that we will see gasoline inventories fall pretty dramatically in the coming weeks. The U.S. is more dependent on gasoline exports, another side effect of the Biden energy policies. Distillates and heating oil looks very, very solid. The big draw in inventories and the rebound in jet fuel demand is going to keep this market well supported.
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