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 prices are on their way to the wild blue yonder after closing at the highest price since November and above the 200-day moving average. Global oil demand is surging, led by China, India and Japan. This morning it was reported that China’s crude oil imports were 12.3 million barrels per day in March 2023, up 22.5 percent on an annual basis. It is the highest level of imports since June 2020, according to Reuters on Thursday. Even US Energy Secretary Jennifer Granholm added to the bullishness as she suggested that the US would indeed refill the Strategic Petroleum Reserve back to pre-Ukrainian war levels. That comment seemed to be a clean-up of her past comments that the US was not in any hurry to refill the reserve and it could take years. Those comments angered OPEC plus Russia and probably was one of the reasons that OPEC decided to announce another production cut.
OPEC Plus Russia is also sending a signal that they do not take too kindly to oil price caps. Now with Russian Urals soon testing those $60.00 cap levels, the world is getting ready for a global oil market showdown. Russia will make them pay the price or they will cut supply. That is the upside price risk for oil.
The CPI data yesterday came in not as hot as expected in March and fell for the ninth consecutive month. And for the first time since September 2020, grocery prices fell monthly. Yet prices still increased by 5% for the 12 months ended in March, down from 6% in February. That CPI data caused the dollar to drop and commodities to go higher. They put a suggestion in the Fed Minutes that there’s a possibility of a mild recession and is for the moment, tempering the bullishness of the data.
News that Biden’s Environmental Protection Agency is pushing new tailpipe emissions limits that could force much as 67% of all new vehicles sold in the U.S. by 2032 to be all-electric and force many Americans to buy car that they can’t afford and do not want. I had a lot of calls about how this would impact oil prices. This is dangerously bullish for global oil prices. This short-sighted policy will prove to be a disaster for the economy and cause a shortage in US refining capacity that is already too short. It will also discourage investment and add to the massive supply versus demand gap that is plaguing the world economic and environmental future.
While the International Energy Agency’s director is trying to say that he expects that global fossil fuel consumption could peak out earlier than the late 2020’s, the accuracy in their past long-term predictions should make us nervous. The IEA has admitted that they will massage their data to scare people to act on climate change and I assume they will also make predictions on peak demand if it fits their agenda.
The EIA reports didn’t seem like we are going into a recession. The EIA showed that demand based on product supplied averaged 20.0 million barrels a day, up by 0.7% from the same period last year.
Over the past four weeks, motor gasoline products supplied averaged 9.1 million barrels a day, up by 5.5% from the same period last year. Distillate fuel product supplied averaged 3.9 million barrels a day over the past four weeks, up by 1.5% from the same period last year. Jet fuel product supplied was up 1.5% compared with the same four-week period last year. So, in every major category demand is higher than it was a year ago. And supply in every major category is below the five-year average.
The EIA said that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.6 million barrels from the previous week. At 470.5 million barrels, U.S. crude oil inventories are about 3% above the five-year average for this time of year. Total motor gasoline inventories decreased by 0.3 million barrels from last week and are about 7% below the five-year average for this time of year. Finished gasoline inventories increased, while blending components inventories decreased last week. Distillate fuel inventories decreased by 0.6 million barrels last week and are about 11% below the five-year average for this time of year.
There were a lot of questions about the exports from the US being down big last week. They should rebound next week leading to a big crude oil drawdown even as we expect another SPR Release.
The EIA reported that mild winter temperatures and reduced natural gas consumption in the residential and commercial sectors drove down overall U.S. natural gas consumption this past January and February, according to our Short-Term Energy Outlook (STEO). In January 2023, U.S. natural gas consumption averaged 106.8 billion cubic feet per day (Bcf/d), its lowest January volume since 2017. February 2023 natural gas consumption averaged 104.5 Bcf/d, its lowest February volume since 2018. U.S. natural gas consumption in January was 8% less than year-ago levels and 3% less than the five-year average (2018–22) for January. February natural gas consumption was 4% less than year-ago levels and 1% less than the five-year February average. Natural gas consumption in the residential and commercial sectors, which was down 16% in January and 12% in February from the same months in 2022, was low because above-average winter temperatures reduced seasonal heating demand.
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