Product Flop. The Energy Report 02/29/2024

Oil prices hit a three-and-a-half month high, yet the oil products flopped in hopes that refiners may be able to meet current demand. Even as gasoline demand hit a three-week high, distillate demand pulled back on the winter heat wave that gripped most of the nation. This comes as Russia, as usual, plays hard to get to agree to the trial balloon put out that would have OPEC PLUS extend voluntary production cuts until the end of the year. Deputy Prime Minister of Russia Alexander Novak, former Russian energy Czar and former stand-in as Russian president for Putin, said it was premature to talk about the production cut extension. Novak of course had a part in pausing Russian gasoline exports driving down domestic gas prices in Russia but also raising concerns that Ukraine’s attacks on Russian refineries could be reducing their ability to refine oil products.

Yet Russian refinery outages may further tighten the global supply of distillates which could be a problem for the global economy as well as for us here at home.  Quantum Commodity Intelligence pointed out that in yesterday’s Energy Information Administration (EIA) US stocks fell for the sixth straight week in the seven days to 23 February, albeit marginally and despite a big fall in weekly deliveries of diesel. Total inventories were pegged at 121.1 million barrels, down 510,000 barrels on the week to hit their lowest level since early December.

Oil on the other hand did improve. US crude inventories rose by 4.2 million barrels. That puts commercial crude oil stocks at the highest levels since mid-November. Cushing, OK oil stocks also hit a 6-week high of 31 million barrels. The API’s report had put the Cushing build closer to 1.8 million barrels. Total crude oil stocks hit an eight-month high of 807.4 million barrels.

Gasoline inventories fell by 2.87 million barrels as warm temperatures caused a surge in gasoline demand as motorists tried to take advantage of a bit of summer in winter.

Yet while we have seen improvement in crude supply, we are still below average in a world where supplies are below average and demand expectations are rising. JODI Data reported that Chinese demand rose by 1.2 mb/d to a 4-month high of 11.42 million barrels a day. Not quite the US demand of 19.5 million barrels a day but impressive nonetheless. U.S. commercial crude oil inventories are about 1% below the five-year average for this time of year. Total motor gasoline is about 2% below the five-year and distillates are 8% below the five-year average.

Quantum Commodity Intelligence pointed out that US ethanol stocks rose to an 11-month high last week amid a slowdown in exports despite gasoline demand hitting a three-week high. US ethanol stocks were reported at 26.022 million barrels in the week ending February 22, up 2% on the week and 5% higher on the year. Giovanni Staunovo reports that the EIA will release oil demand/supply data for December today. November crude production was at 13.308mbpd, EIA forecasts 13.338mbpd for December. US oil demand is forecasted at 20.065mbpd in December 23, was at 19.327mpbd in December 22.

Winter’s return and production reductions are giving natural gas hopes for a short-term bottom. With storage above normal and storage full in Europe, today’s EIA report will be critical. Yet despite the price crash and the fact that many producers are going through pain, the long-term outlook for LNG is strong. Anthony Harrup at the Wall Street Journal that U.S. natural gas inventories likely saw another below-average withdrawal last week as milder-than-usual temperatures continued through much of February. Natural gas in underground storage is expected to have decreased by 91 billion cubic feet in the week ended Feb. 23 to 2,379 Bcf, according to the average estimate in a Wall Street Journal survey of 11 analysts, brokers, and traders. Estimates in the survey range from a draw of 103 Bcf to one of 79 Bcf. The forecast implies a bigger withdrawal than the previous week’s 60 Bcf, but below the five-year average draw for the week of 143 Bcf. Stocks the previous week were 22.3% above the five-year average.

The U.S. Energy Information Administration said last week that if the rate of withdrawals matched the five-year average for the remainder of the withdrawal season, inventories would end March at 2,084, or 451 Bcf above the average.

The Gulf Times reported that, ”The global glut plaguing liquefied natural gas markets may start to dwindle in five years, threatening to spur a deficit equivalent to twice the output of leading producer Qatar. New projects are needed to fill the shortfall, with demand for the super-chilled fuel forecast to double in the 20 years to 2035, Cedigaz, a Paris-based industry research group, said in its LNG Outlook. Buyers in Asia are boosting use of the fuel at a “staggering” pace, Jack Fusco, chief executive officer of US exporter Cheniere Energy Inc, said in a Bloomberg Television interview. While plants currently in operation or being built will add to global oversupply, aging facilities and shrinking resources in some areas mean capacity will start declining after 2021. That’s a boon for companies from Royal Dutch Shell to Tellurian Inc and Novatek PJSC looking to invest in new production in the next decade to meet demand. “The continuous growth of the LNG market will leave a large margin for the implementation of new projects,” Cedigaz said in the report e-mailed on Thursday.

The US shale boom may make the country one of the biggest LNG producers by the end of the period, according to the Cedigaz report. Output will end in some nations such as Trinidad and Tobago. “I foresee that the LNG market needs at least a hundred million tonnes of new liquefaction capacity above what’s under construction today in order to meet demand needs of the market by 2025,” Meg Gentle, chief executive officer at Tellurian, said by phone on Thursday. “Demand is growing more than people expected.”

Global LNG capacity is expected to peak at 387mn tonnes a year by 2021-2022 from 288mn tonnes this year at existing or under-construction plants, Cedigaz said. Trinidad and Tobago, the world’s ninth-biggest producer, will stop production in 2029. The Atlantic LNG venture in the Caribbean nation has already curbed output and cut its workforce due to feed-gas shortages.

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