Damage Control. The Energy Report 04/04/2024

Oil and crack spread popped after a big supply drop in oil products as the market tries to get a handle on just how bad the damage is to Russia’s biggest refinery. Politicians start to do damage control to explain why their foreign policy blunders are not to blame for the commodity Supercycle threatening another inflation spike.

The Biden Administration which is in perpetual damage control is taking heat after canceling a buyback for the depleted Strategic Petroleum Reserve (SPR) that was tapped for political purposes before the Ukraine War that might have been avoided if it were not for foreign policy blunders and the false accusation against Russia that they colluded with the Trump campaign to meddle in a US election.  Or reversing the get tough on Iran campaign that allowed Iranian exports to flourish giving them billions to support proceed wars and give cash to Hezbollah, Hamas, and the Houthi rebels.  Now there is a lot of talk that  Iran is getting to retaliate for the  electric attacks by Israel on its consulate in Damascus.

Of course, the Biden Administration decided to tap the US oil reserve originally to send a message to Saudi Arabia when the kingdom Biden pledged to make a pariah state refused to raise oil output, They also tapped the reserve because gas prices continued to rise even as the Biden Administration kept telling us that inflation was transitory and tries to make you believe that Inflation has nothing to with government spending and surging government deficits.

The Biden administration tried to redefine the mission of the SPR from a tap in case of emergency supply into a price control tool.  The Biden Administration seems to like to try to redefine a whole bunch of things.

Now with a looming supply shortage and geopolitical risk factors threatening a price spike that could run President Biden right out of the White House, assuming he’s not on vacation, what will he do next?

He would be hard-pressed to tap the reserve that has fallen just to a 40-year low and just about 20 days of demand cover in the US that hit an impressive 21.292 million barrels a day very close to a record high. But desperate men do desperate things.

Now famed oil analyst Anas Alhajji reports “The Biden Administration wants to calm things down around the world before the US elections. He asks “- What it will offer Iran and its cronies in Yemen, Lebanon, Syria, and Iraq to keep the peace?

Energy policy matters and political decisions impact your costs. If you don’t believe it and if you fail to see the path, we are on then just look at California to get an idea.

Another famed oil analyst Tom Kloza pointed out that “Energy price reflation is running rampant on the West Coast. Wholesale gasoline prices today are up 18-30%; Diesel is up ~10%; and jet fuel is 5-7% higher than on this day in 2023.’

Russia at first said it was business as usual at refineries that were attacked by Ukraine drones. Now they report that “all refineries that have been damaged will be back to normal conditions by the start of June.” In the refining world until June is a very long time and I guess that is assuming that the sector does not get hit with any more drone attacks. The Biden Administration is upset that Ukraine keeps attacking Russia’s oil infrastructure, but Ukraine thinks it’s key for them to have a chance to win the war.

So, while the risk of global supply surges and Russian refineries are under attack US supplies are getting extremely tight.

The EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.2 million barrels from the previous week. At 451.4 million barrels, U.S. crude oil inventories are about 2% below the five-year average for this time of year. Total motor gasoline inventories decreased by 4.3 million barrels from last week and are about 3% below the five-year average for this time of year. Both finished gasoline and blending components inventories decreased last week. Distillate fuel inventories decreased by 1.3 million barrels last week and are about 7% below the five-year average for this time of year. Propane/propylene inventories decreased by 0.4 million barrels from last week and are 10% above the five-year average for this time of year. Total commercial petroleum inventories decreased by 2.2 million barrels last week.

While oil may take a breather after its impressive run the upside price spike risks remain.

Products look solid and cracks should go higher to keep up with demand. Stay hedged as the supply deficit that we have been warning about is unfolding.

Natural gas prices today are struggling ahead of today’s EIA report we are expecting to see a draw of 40 BCF and last year we saw a withdrawal of 29 BCF the five-year average is 1%, last week inventory stood at about 2.296 billion cubic feet and it appears the end of October estimate for supplies is still a whopping 4.1 trillion cubic feet this market needs to see reduced production and some help with the weather.

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