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
With the world facing record food prices and the potential that poor countries might starve, is this the best time to be putting more food in our gas tanks? The Biden administration is desperate to lower gasoline prices and is expected to announce that it will temporarily allow the country to sell gasoline with 15% ethanol between June 1 and September 15, a time when it is normally banned. The reason it is banned in the summer is that in the summer gasoline evaporates and a 15% blend of ethanol has been known to add smog in big cities, an issue that an administration that is focused on the environment would normally not find acceptable.
The White House says that an emergency waiver can help increase fuel supplies, give consumers more choice to get lower prices and provide savings to many families. At current prices, the White House says E15 can save a family 10 cents per gallon of gas on average, and many stores sell E15 at an even greater discount. Yet will Americans get a big benefit? While ethanol usually costs less than gasoline, E15, which contains 15 percent ethanol, should cost less per gallon than regular gas or the 10-percent ethanol.
According to the Energy News Network, a study published in 2009 by the National Renewable Energy Laboratory tested the fuel economy of various ethanol blends in 16 vehicles with model years between 1999 and 2007. It concluded that the average reduction in miles per gallon using a 20-percent ethanol blend was 7.7 percent compared to pure gasoline. One of the researchers who worked on that study, Wendy Clark, told Midwest Energy News that E10 contains about 3 percent less energy than gasoline, and E15 contains about 5 percent less energy. That means to be sold on an energy-equivalent basis, E15 needs to be priced at about 2 percent less than E10.
This is not the right time to be playing with this to win some short-term political points. Consider the fact that just last week the UN reported that food prices have hit a new record high. The UN Food and Agriculture Organization’s (FAO) latest food price index averaged 159.3 points in March, up from the then-record 140.7 points in February. The March index is the highest it has been since the tool was created in the early 1990s. Prices are also 12.6% higher than they were in February, the second-highest month-to-month increase in history, according to the UN.
The Russian war in Ukraine will further disrupt the grain supply. Ukraine was the world’s fourth-largest corn exporter in the marketing year 2021-22 (July-June). In 2019, around one-quarter of global wheat exports came from Ukraine and Russia. One-fifth of global maize, and barley. They are the source of nearly two-thirds of traded sunflower oil, with Ukraine alone accounting for almost half of global exports.
This move by the Biden administration seems like an easy answer. He will win favor with some of the corn-producing states that he has lost favor with. One of the positive aspect is at least he’s going to American producers as opposed to foreign producers when it comes to trying to cool down energy prices. Yet this administration’s utter disdain for U.S. oil and gas is still a big issue and this band-aid with E15 will not have any real or lasting impact on gas prices or oil supply. It’s just another sign that this administration is all over the board with no clear, coherent energy policy that will solve our problems in the short term or the long term.
The other big issue is the record release from the SPR. This week the SPR released a near-record 3.7 million barrels from the SPR. Yet the problem is that the Biden administration is just taking away our global supply cushion. This is reckless in a world where global spare production capacity is the tightest it’s been in decades and there is still a real risk that Russian oil and gas might get cut off in the future. OPEC warned yesterday that if Russia’s oil exports and gas exports get cut off, there will be no real way to replace that supply.
Let’s face it, the Biden administration is misusing the strategic petroleum reserve, trying to win political brownie points instead of being focused on America’s energy security. Biden’s advisors are misreading the global risk to supply and by using the strategic petroleum reserve too early, he’s leaving the global economy vulnerable to a real price shock in the future. In 2020, 27% of U.S. households had difficulty meeting their energy needs. The EIA reported that, “In 2020, 34 million U.S. households (27% of all U.S. households) reported difficulty paying energy bills or reported that they had kept their home at an unsafe temperature because of energy cost concerns. This estimate is less than what was reported in the previous iteration of the Residential Energy Consumption Survey (RECS), when 37 million households, or 31%, reported similar issues in 2015. The RECS measures household energy insecurity by asking a series of questions about challenges paying energy bills or conditions of unsafe temperatures attributable to energy cost concerns.
It is time for the Biden administration to admit they screwed up and they need to reinstate the Trump era pro-energy policies that they canceled. Only then will we start to solve the underlying problems that plague the American people and solve the U.S. energy crisis.
Oil prices are coming back strong after putting into perspective the shut down in China. I think the market is starting to realize that even with the release from the global strategic reserves, supplies are going to continue to be tight. Later today we get the OPEC monthly report and the trade may key off of that for some direction. We also will see the inventory reports today and with the massive release from the strategic petroleum reserve, the American Petroleum Institute reports should show a slight increase in crude oil supplies. It’s almost the amazing that with all of the oil being released from the global SPRS, that supplies aren’t building even faster. Still we might see gasoline and distillates up and refinery runs should be up as refining margins are pretty darn good.
Natural gas prices are soaring in late winter weather and the fact that the global demand for U.S. LNG is red hot. Last week the EIA reported that working gas in storage was 1,382 Bcf as of Friday, April 1, 2022, according to EIA estimates. That was a net decrease of 33 Bcf from the previous week. Stocks were 399 Bcf less than last year at this time and 285 Bcf below the five-year average of 1,667 Bcf. At 1,382 Bcf, the total working gas is within the five-year historical range.
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