Gas Demand Follies. The Energy Report 03/19/2024

The first sign of spring is rising gasoline prices. Gasoline prices are surging as RBOB futures hit the highest level since last September on refinery outages and seasonal factors but also because the weak global gasoline demand narrative is filling up with reality. Gasoline demand in the United States is stronger than people had anticipated and if you listen to Exxon Mobil, global gasoline demand has never been better.

ExxonMobil says that global gasoline demand is through the roof and the electronic car movement hasn’t cut into global demand like people assume that it would. Even with all the money that we’ve spent trying to convince Americans to drive electric cars, it seems that that push is falling flat on its face. This of course is probably a good thing because let’s face it, the production of all those electronic vehicles adds to greenhouse gas emissions.

While there is no doubt that people are feeling the impact of higher gasoline prices, so far the demand for gasoline, if you look at the trends, is going to continue to stay strong. The good news for drivers is that the Whiting, IN BP refinery is reportedly back online. But we still have supply shortages around the globe everywhere you look. Refinery outages due to Ukrainian drone attacks in Russia are going to tighten global supply even more and the world will look to the United States to fill that void. I have said before the possibility for price spikes is extremely high when you have oil supplies that are heading into a global deficit and when you have product supplies below average throughout the world, the risk of higher prices and price spikes continues to be high.

Also, if you want to feel better, John Kemp at Reuters points out that gasoline prices were slightly below the average since the turn of the century last month, after adjusting for inflation. Nationwide pump prices (including taxes) averaged $3.33 per gallon in February 2024, which was in the 43rd percentile for all months since 2000 after adjusting for core inflation, explaining why fuel prices have been a political non-issue in recent months.

Today we’re going to get another weekly report from the American Petroleum Institute to find out just how tight supplies are becoming. We expect that we will see a drawdown of 3,000,000 barrels of crude oil this week. We should also see a similar drawdown in gasoline as well as distilled inventories. If that sounds bullish to you then you better hang on to your hat because some of the whisper numbers that we’re hearing from different sources suggest that we could see a crude oil drawdown of over 7 million barrels.

While oil prices may see a little bit of slowing momentum due to the rising dollar and fears about what the Fed may do on interest rates, the reality is that when it comes to supply versus demand I’m afraid we’ve already had the results baked in. Yes, it was historic that Japan raised its interest rates for the first time in 17 years but that was widely expected. If you look at the market action for oil today, it seems to be divorcing itself a little bit from some of the macroeconomic concerns that was driving oil over the last couple of months.

We are in a global supply crunch when it comes to everything petroleum. As we have been running for months, supplies are below average across the globe and now we’re starting to see the demand narrative unwind. This is why we’ve been recommending to be hedged for the long term and continue to recommend that.

Natural gas prices are getting a little bit of hope with a little blast of winter and hope it will see some production cutbacks. Still, negative pricing in some basins may put many producers out of business.

Gold prices have pulled back after its recent record-breaking run and silver. Peter Thomas Chairman at AUSECURE says, “After a week of continuous new highs in the gold market followed by a break triggered by the CPI this week started off very quietly with both the funds and the banks holding off trade as we all wait for the FOMC to be released. Gold spent most of the early trade lower on the day and then tremors out of Russia started after President Vladimir Putin warned NATO that he is fully prepared to use his nuclear weapons. Putin coined a new term not heard before in which he said “sanitary zone” between Ukraine and Russia. Gold rallied up to $6.00 higher on the day but drifted slowly lower over the midday trade. The attitude of the trading day felt neutral towards the close.

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