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
The Biggest Gouger. The Energy Report 03/29/2023
The legislation is designed to combat climate change and forms a new government watchdog group that would force new reporting requirements from oil refineries. A lot of the data that they’re going to be asking for already exists but if it makes you feel better, it will also cost the taxpayers more money. They also say that the legislation is going to protect neighborhoods and schools from oil drilling. The governor boasted, “California took on big oil and won”. But the losers are going to be the people of California.
California’s energy infrastructure is an embarrassment to the country. Instead of being reliable and cheap it’s become expensive and oppressive to the poor and the middle class. Now with moves in California to ban natural gas, the economy of California is going to be damaged for years to come. Jobs and businesses will flee the state because to have a viable economy you must have a viable, reliable energy source. You also must have an energy source that is reasonably priced. That’s not happening in California. So, if you don’t leave the state for the crime you can lead the state because energy is unaffordable.
Government governor Newsom favors windfall profit taxes on energy companies. Yet trying to understand what a windfall profit is shows that the governor has little regard to economics. it also is a failure to understand the boom-and-bust nature of the energy industry and the amount of capital it takes to provide reliable and reasonably priced supplies.
Yet perhaps Governor Newsome should look across the pond to see the negative impact that windfall profit tax is having in Europe.
The Guardian reports that” The impact of windfall taxes on North Sea oil and gas exploration has turned out to be every bit as disastrous as critics predicted. More than 90 per cent of offshore firms are cutting investment, driven away by a raid on profits and the uncertain future caused by political meddling.
Successive governments such as the UK, in pursuit of “net zero”, have deliberately presided over the decline in North Sea extraction to reduce the UK’s carbon emissions while switching to renewables. However, oil and gas are still needed, and were being imported reasonably cheaply until the Ukraine war changed the economics completely. The surge in prices inevitably pushed up the profits of the energy companies, such that politicians felt compelled to tax them more. A report from Offshore Energies in the UK says this has driven away billions of pounds needed to maintain domestic oil and gas production.
The cuts mean the UK’s potential oil and gas resources have been downgraded, with 500 million barrels less likely to be produced – enough to support the nation for six months. This will just make Britain more dependent on imports. Indeed, as domestic production declines in the UK, overall reliance on oil and gas has increased.
As concerns about a global banking meltdown ease, fears of an oil and product supply shortage rise. The American Petroleum Institute (API) in their report last night showed how quickly things can change when it comes to the perception of ample supply. The API showed that crude oil supply fell by 6.076 million barrels. There was also a substantial 5.8918-million-barrel drop in gasoline. Distillates fell by a modest 548,000 barrels.
I would expect that the Energy Information Administration is going to show similar data showing big draws in crude and product supplies. We’re going to get into a period where the supplies could tighten significantly and that is one of the reasons why prices are significantly higher today.
Energy Secretary Jennifer Granholm is also suggesting that maybe, just maybe, she was wrong about the Strategic Petroleum Reserve. The Energy Secretary previously put downward pressure on the oil market by suggesting that the SPR would not buy back any oil this year, but she changed her mind on that and now there is a possibility that they could buy some oil back later this year. Reuters reported that Granholm told Reuters during a visit to Puerto Rico that purchases could begin late in 2023. “We will begin that process this year but to refill the full amount is impossible to do in one year,” Granholm said. Reuters says that the department is conducting a 26-million-barrel SPR sale mandated by Congress and two of the four SPR sites in Texas and Louisiana are down for maintenance, both of which have delayed buy-backs.
I say one of the biggest issues that’s going to come back to haunt the Biden administration is the misuse of the SPR. When oil prices start to spike, as we fully expect they will, there is going to be a lot of questions as to why the Biden administration used the SPR to try to control prices which hurt production and helped contribute to what a coming supply shortfall is. Oh, I am sure he will blame the energy companies or he will blame Vladimir Putin or he will blame the man in the moon.
The ongoing dispute between Kurdistan and the Iraqi government continues and that is keeping about 400,000 barrels a day of oil off the market. If this standoff continues, it’s going be a bigger and bigger issue. The world can’t just lose 400,000 barrels of oil a day especially as the US refiners are kicking into high gear for the summer drive season.
Physical product demand for both oil and gas are extremely strong. Sources that I’ve talked to at different terminals are seeing the demand for diesel and gasoline as strong and higher than it’s been in some time. Seasonally, technically and fundamentally oil and products look poised for a big rally.
Natural gas on the other hand continues to struggle. Below normal temperatures for this time of year doesn’t seem to be enough to support the market that is in the heart of shoulder season.
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