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 Joe Biden economy with rampant inflation and bank failures is creating a malaise and a disconnect in oil and gas markets. Not only are they trying to disconnect your gas stove, but crazy climate and economic policies, not to mention an energy policy that is based on emotions and lies, could be creating policies that is hampering investment and raising the risk of a future energy price shock. If you like your stove, you can keep your stove! No one is trying to take your stove away until they are. We are seeing uncharacteristic pessimism surrounding the economic outlook based on speculative short selling which happens to be the highest since the global pandemic, even as the tight supply situation does not seem to justify all that negativity.
This energy market pessimism comes from an energy policy that has disconnected from the actual supply and demand situation, causing a drop in investment and encouraging more OPEC production cuts. Economic worries continue to allow oil prices to ignore the fact that demand is strong and supply is tight. It also seems to be a bet that the Biden team and the Federal Reserve are going to drive the economy into the ground.
Gasoline inventories are really at the tightest level they have ever been at this time of year. Increased refining capacity this year is one reason the market is not as concerned. AAA said gas prices held steady at around $3.535 a gallon nationally but wildfires in Canada could start edging prices back up. We are seeing the wildfires in Alberta taking their toll. Bloomberg reports that as of Sunday afternoon, there were 87 active fires in the province with 24 considered out of control, up from 21 the previous day. Oil production has been shut in and we could lose a third of Alberta’s daily output of around 3.8 million barrels a day.
There are signs also that OPEC and Russia are cutting supply into what will be a supply deficit later this year. Yet if you are fearful of a recession, it’s time to eat drink and be merry because that is a problem for another day. In Alberta, wildfires are some of the worst Canada has ever faced and is continuing to shut down production, thwarting attempts to restart it.
Talk that the US is planning to start buying back for the Strategic Petroleum Reserve is creating a floor, yet the upside is on a wait and see basis as the market wants to make sure that the banking sector and the economy is not going to collapse. U.S. Energy Secretary Jennifer Granholm said Thursday the Department of Energy could start repurchasing oil for the Strategic Petroleum Reserve (SPR) completing a congressionally mandated sales in June.
Climate Czar John Kerry says to bet against the US oil and gas industry and their innovation. The AP reports that, “Oil and gas producers talk up technological breakthroughs they say will soon allow the world to drill and burn fossil fuels without worsening global warming. U.S. climate envoy John Kerry says the time is here for the industry to prove it can make the technology happen — at scale, affordably and quickly — to stave off climate disaster. And Kerry says he has “serious questions” whether it can. Kerry’s comments came in an interview with The Associated Press on one of the most crucial topics in the fight to slow global warming: the argument from oil and gas producers that they will soon have technology in place to extract the climate-damaging gases that make fossil fuels the main culprit in climate change, allowing companies to keep pumping crude and natural gas worry-free. Kerry said the ideal solution is a fast global switch to renewable energy, but oil and gas companies have a right to give their claim of technological rescue a try.
Yet Mr. Kerry cannot offer any real data that shows that his plans to move to renewable fuels will reverse climate change that he said years ago at this point would be too late. And if it is not too late to save the planet, then perhaps his entire theory of manmade climate change will have to be reexamined.
Sanctions on Russia are not working, and they must be reexamined. Bloomberg shows that Russia has had no issues exporting oil. They reported that lows are now up by 10% since the first week of April and hit a new high for the period since Bloomberg began tracking them in detail at the start of 2022. With almost all Russia’s crude going to China and India, volumes to Asia also reached a new peak.
Reuters reports that – Leaders of the Group of Seven (G7) nations plan to tighten sanctions on Russia at their summit in Japan this week, with steps aimed at energy and exports aiding Moscow’s war effort, said officials with direct knowledge of the discussions. New measures announced by the leaders during the May 19-21 meetings will target sanctions evasion involving third countries and seek to undermine Russia’s future energy production and curb trade that supports Russia’s military, the people said according to Reuters.
EBW analytics says that natural gas soared early last week as Canadian wildfires shut-in as much as 2.5 Bcf/d to jump start a rally. The front-month contract tested resistance north of $2.25/MMBtu each day last week—setting up key resistance at the 20-day moving average at $2.31/MMBtu. Market Watch is reporting that Pipestone Energy said Monday its operations have been disrupted again by wildfires in the province of Alberta. The energy company said that with the precautionary shut-in of certain third-party infrastructure and associated operated producing locations in the Grande Prairie area, about 20,000 barrels of oil equivalent a day of production has been temporarily curtailed since late Friday. Pipestone between May 8 and May 12 had restarted the majority of its producing assets before a resurgence of wildfires near third-party processing facilities. The company said it isn’t aware of any significant damage or loss to either its owned or third-party infrastructure. Pipestone said it is ready to resume production as soon as the currently shut-down third-party infrastructure is restarted. Last Wednesday, the company said production had been cut by wildfires in the Grande Prairie region to roughly 5,000 boe/d after it shut-in 20,000 boe/d in production earlier in the week.
Now Reuters is reporting that Russian pipeline gas exports have declined by 11.4% in the first half of May from April’s average level, Reuters calculations showed on Monday, against a background of low spot prices. Average gas supplies to Europe by Kremlin-controlled energy giant Gazprom (GAZP.MM) decreased so far in May to 67 million cubic meters per day from 75.6 million cubic meters per day in April. Gazprom, which has stopped publishing its own export statistics, did not respond immediately to a request for comment.
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