Life in the Eighties. The Energy Report 04/10/2023

Oil prices are getting used to oil in the eighty-handle supported by coming OPEC production cuts as well as rising geopolitical risk. China’s tensions with Taiwan and the ongoing Russia war in Ukraine continues to have influence on OPEC plus Russia decisions. The $60.00 a barrel price cap farce on Russian oil looks like it is backfiring as China and India suck down Russian oil and Japan is already asking for a waiver as they need to get Russian supply. What that means is that oil should start building a floor at $80.00, working toward the high end of the $80.00 handle in the coming weeks.

That means it is going to be a very expensive summer at the gas pump. Gas prices are already on the rise up almost $10 a gallon from last week. AAA reported that the national average for regular gas is $3.604 per gallon up from $3.506 from a week ago. US gasoline supplies are 7% below average range for this time of year while demand for gasoline is surging. The Energy Information Administration (EIA) pegged demand at a 4-week average of 9.0 million barrels a day, up by 3.9% from the same period last year. While we will see refiners ramp up, being this far behind on supply does not bode well for prices especially as oil prices go higher and China oil imports are expected to increase by 500,000 and 1 million barrels per day (bpd) this year to as high as a record breaking 11.8 million barrels per day reversing previous two years’ decline to exceed 2020’s record of 10.8 million bpd.

Because of that strong demand in China, it is reported that Saudi Arabia will keep supplying at some refiners across Asia with full contractual volumes of crude despite the 500,000-barrel production cut.

What that means is for other parts of the world oil from Saudi Arabia will become much tighter. And as we know Saudi Arabia doesn’t think they’re going to have any problems selling that oil in Asia because they raised their official selling price even before the official announcement of the OPEC production cut. So Saudi Arabia can have its cake and eat it to.

The US has drained the Strategic Petroleum Reserves so there’s not going to be a lot of relief coming from the Biden administration when it comes to rising gasoline prices this summer. The Biden administration energy policy has allowed Saudi Arabia and OPEC to have more sway over global prices than they’ve had pretty much since the rise of the US shale revolution. This was a huge strategic misstep by the Biden administration.

The diesel situation isn’t much better. Medium and sour grades of crude oil are still commanding higher prices than normal because of the global diesel shortage. Diesel supplies in the United States according to the EIA, are about 12% below the five-year average for this time of year your refiners must focus on gasoline as well and so it’s going to be a real battle for refiners to keep the market well supplied.

The Financial Times is reporting that, “The Chinese navy has conducted 120 flight sorties from an aircraft carrier over the past three days, Japan said on Monday, highlighting the concerns that Beijing’s war games around Taiwan have raised for the US and its allies in the Indo-Pacific region.” The FT said, “Beijing launched the maneuvers on Saturday to “punish” Taiwan after President Tsai Ing-wen met House Speaker Kevin McCarthy in California last week. But the drills, which the People’s Liberation Army on Monday said its forces had successfully completed, have given China the opportunity to train its armed forces, and took place in proximity to Japan and US forces, the bulk of which are stationed in Okinawa.

Another major embarrassment for the Biden administration was a huge national security leak coming from inside the Pentagon. The Wall Street Journal reported that, “Russia could achieve its long-sought goal of air superiority in Ukrainian skies as early as May because Ukraine is running out of antiaircraft missiles, according to purported Pentagon presentations that have leaked on social media. The Journal said that, “The Pentagon and the Justice Department began an investigation last week into document leaks when some purported U.S. Department of Defense presentations were posted by Russian propagandists on Telegram on Thursday. The Wall Street Journal, which viewed these documents and a larger trove that emerged on Friday, hasn’t been able to independently verify their authenticity. Pentagon spokeswoman Sabrina Singh said Sunday that the U.S. continued to assess the validity of the documents “that appear to contain sensitive and highly classified material.” She said the U.S. had discussed the matter with allies over the weekend and was weighing the potential national security impact of the breach.” Thank goodness the so-called adults are in charge.

After last week petroleum draw, we should see a bit of a rebound. Look for crude to be up 1.0 million barrels and gas and diesel to be up 2.0 million barrels. Refinery runs up 0.5.

Natural gas is flirting with falling below $2 again. Shoulder season is not going to be very kind to this market. Looks like we will see our first injection into storage with an expectation of an increase somewhere around 29 BCF.

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Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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