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
Oil and gas prices in the U.S. took a break from the energy crisis as the strength in the U.S. dollar dazed the trade, even as inflation may force the chain “Dollar Tree” to charge more than a dollar for their stuff. Yet it is amazing that the dollar can show such incredible strength as Democrats in Washington want to ram through a $3.5 trillion spending package that will cost maybe twice or three times that much and could risk bankrupting the country. Or maybe the dollar is rallying because it realizes that the chances of Democrats pushing through this fiscal suicide pact are diminishing. Or maybe because someone believes Biden’s tweet that “My Build Back Better Agenda costs zero dollars” other than that pesky admitted to 3.5 trillion that is more like 5.5 trillion. This is sort of like saying that Biden’s energy policies have no impact on prices.
Whatever the reason for the dollar strength, along with the Energy Information Administration (EIA) petroleum status report, it took trader’s minds off of the global energy crisis and inflation for the moment. The EIA reported that U.S. oil production came back to 11.1 million barrels a day. It was impressive but not enough to give us comfort that U.S. producers will be able to meet demand. The competition for crude and record-breaking coal and natural gas prices will cause a big increase for power generation.
Crude oil demand will add at least 500,000 barrels a day of extra demand, wiping out the expected OPEC Plus increase of 500,000 barrels a day. OPEC says that the global oil supply will be below demand by 1.2 million barrels a day in October, and by 900,000 barrels a day the following month, according to an OPEC spokesman.
That realization pushed Brent crude above $80.00 a barrel for the first time in three years as carbon prices broke records. The EIA report was mixed as a build in crude oil seemed to give the rally a pause. The EIA reported that U.S. commercial crude oil inventories increased by 4.6 million barrels from the previous week. At 418.5 million barrels, U.S. crude oil inventories are about 7% below the five-year average for this time of year. Total motor gasoline inventories increased by 0.2 million barrels last week and are about 3% below the five-year average for this time of year. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories increased by 0.4 million barrels last week and are about 12% below the five-year average for this time of year. Propane/propylene inventories increased by 2.6 million barrels last week and are about 19% below the five-year average for this time of year. Total commercial petroleum inventories increased by 10.9 million barrels last week.
The bottom line is that we need more products and that should support petroleum. Propane inventories have us very worried for users this winter. It could also hit our economy like it hit China.
Reuters reported that China’s manufacturers reported a decline in business activity last month as energy-intensive industries were hit by spreading power shortages and rationing. The official purchasing managers’ index fell to 49.6, below the 50-point threshold which divides expanding activity from a contraction, and in just the 10th percentile for all months since 2011. Nothing to see here.
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