Turning the Screws. The Energy Report 04/06/2023

It you thought the OPEC production cut was going to be the only indignity that Saudi Arabia would direct at the Biden administration, well you had better think again.

Saudi Arabia raised the official selling price for May – loading Arab Light to Asia by 30 cents a barrel from April to $2.80 a barrel over Oman/Dubai quotes. This increase was a sign that Saudi Arabia feels pretty darn confident that they could raise their price for oil despite some concern about the global economy without any ill effects. This comes on a day when the foreign ministers of Iran and Saudi Arabia met on Thursday in their first formal talks in 7 years hosted by the Chinese foreign ministry in Beijing. The price increase move also sent a message that Saudi Arabia is going to stand up to the Biden administration’s feeble attempts to control oil prices with SPR releases attempts to cap oil prices at a time when US petroleum prices are getting uncomfortably low. Biden and his team may have missed an opportunity to refill the reserve and that will come back to haunt us all.

The Energy Information Administration report should get the Biden Administration very worried. While the price reaction was somewhat muted because of weak ADP jobs reports and a big drop-in US service sector data, the reality of gasoline supplies falling seven weeks in a row is a signal that gas prices at the pump are getting ready to spike. The EIA reported another huge 4.1 million barrels drop in gasoline supply, putting them 7% below the five-year average. That comes as gasoline demand is on the rise. Not only was it up week over week, it was also reported that US consumers bought 390.4 million gallons of gasoline per day last week. That is +30.8 million barrels year over year.

U.S. commercial crude oil inventories did not fare much better. The EIA reported that crude supplies fell by decreased by 3.7 million barrels from the previous week. At 470.0 million barrels, U.S. crude oil inventories are about 4% above the five-year average for this time of year. Yet I remind you that 4% is misleading as the US SPR, because of Biden’s unprecedented release from the reserve, is at the lowest level since 1982.

Distillate fuel inventories decreased by 3.6 million barrels last week and are about 12% below the five-year average for this time of year. Farmers will be getting to work planting and demand for diesel will rise. Total commercial petroleum inventories decreased by 11.0 million barrels last week. Demand is pretty much back to one year-ago levels. While the EIA says that demand based in total products supplied over the last four-week period averaged 20.1 million barrels a day, down by 1.5% from the same period last year, it partially reflects poor planting start.

Gasoline demand over the past four weeks, motor gasoline product supplied averaged 9.0 million barrels a day, up by 3.9% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels a day over the past four weeks, down by 0.1% from the same period last year. Jet fuel product supplied was up 6.1%.

There may be some hope on gas though as Reuters reports that the Exxon Mobil Corp has completed the startup of a new $2 billion crude distillation unit (CDU) at its Beaumont, Texas, refinery, making the plant the second largest in the United States, said people familiar with plant operations. The new 250,000 barrel-per-day (bpd) Crude C CDU lifts the Beaumont refinery’s capacity to 619,024 bpd, second only to the Motiva Enterprises (MOTIV.UL) refinery in nearby Port Arthur, Texas, the people said according to Reuters.

Despite reports of a deal, Iraq’s northern oil exports to Turkey have not yet resumed, sources told Reuters on Thursday, leaving several fields shut in the semi-autonomous Kurdistan region.

Now we know that Biden thinks his energy policy is more virtuous that President Trump’s “drill baby drill” policy but there are signs that the road to climate hell is paved with good intentions. Only has the war in Ukraine led to the burning of more coal and dirtier fuels, the Russian price caps are taking oil on longer routes that add to greenhouse gases. Oil transported by rail also adds to the so-called greenhouse gases.

The upside risk for oil and products is substantial. Some people are worried about the OPEC supply cut gap, but the consolidation is making thinks look like it’s getting ready for another spike.

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