The Phil Flynn Energy Report
Signs of Spring
Ah, Spring. When a young man’s fancy turns to thoughts of oil demand. Despite fears of more lockdowns in Europe, there are signs that demand is rising. Iraq, for example, felt confident enough to raise its oil price to its Asian customers, and data out of China suggest that oil demand is improving and should continue to do so. Data out of China also shows China's strong hunger isn’t only for oil, but for other commodities, as well.
China reported that their March crude oil imports were at 49.66 million tons, up 21% YoY. They also saw natural gas imports jump in March to 8.73 million tons, up 26.1% YoY. Iron ore March imports were at 102.11 million tons, up 18.9% YoY. Copper March Imports 552.32 tons, up 25% YoY. China’s soybean March imports were at 7.77 million tons, up 82% YoY, and meat imports at 1.02 million tons, up 11.4% YoY.
U.S. gasoline demand is showing signs of surging and oil traders should brace for a substantial crude oil draw in this week’s report. U.S. production, while creeping up, is still a far cry from its post-pandemic highs. That’s leading to empty pipelines.
Reuters reports that "By the fourth quarter, total utilization of the largest oil pipelines from the Permian is expected to drop to 57%, consultancy Wood Mackenzie said. The nadir during the last market bust in 2016 was roughly 70%. U.S. crude output is currently about 11 million [barrels per day (bpd)] and is not expected to grow much until 2022. But more pipelines were already set to come online, growing the gap between production and capacity covered by long-term contracts to a record over 1 million bpd in February, according to energy research firm East Daley Capital.”
The drilling productivity report from the EIA and as reported by Reuters said the following:
U.S. oil output from seven major shale formations is expected to rise for a third straight month, climbing by about 13,000 barrels per day (bpd) in May to 7.61 million bpd, the U.S. Energy Information Administration said on Monday.
The biggest increase is set to come from the Permian, the top-producing basin in the country, where output is expected to rise by 52,000 bpd to about 4.47 million bpd, the highest since April 2020, the EIA said in a monthly forecast.
Output from other top producing basins such as the Bakken and Eagle Ford are expected to slide by 12,000 bpd and 9,000 bpd, respectively. Production in the Bakken basin of North Dakota and Montana is expected to drop to 1.1 million bpd, the lowest since July 2020, according to the data.
Fact-checkers on Joe Biden's energy policies are backtracking as the truth that Biden’s energy policies have led and will lead to higher prices for gasoline and oil has become clear. Even some analysts that were interviewed by the fact-checkers have reversed their position, as the increase in price and the impact on U.S. oil production and investment are now obvious to almost everyone.
I was interviewed by fact-checkers from USA Today and laid out the facts about why Joe Biden's policies were raising oil and gasoline prices. I wasn’t quoted in the “fact check” article; in fact, the article quoted other analysts without any hint to the fact that there was a dissenting voice with real facts to back up the case. That particular article led Facebook and Twitter to protect Joe Biden, claiming that linking an increase in gas prices to actions taken by Joe Biden lacked context and were untrue.
Biden's most recent challenge to U.S. oil producers is an effort to tax them out of business by removing tax breaks that all companies get, now with the exception of oil and gas companies. Reuters reported that the tax hike for oil and gas is linked to the $2.3 trillion infrastructure package, and that it’s part of a wider plan that includes boosting the corporate income tax rate from 21% to 28%.
A Treasury Department office estimated that eliminating subsidies for fossil fuel companies would boost government tax receipts by more than $35 billion in the coming decade.
The “Made In America” tax plan did not specify which tax breaks for fossil fuel companies would be targeted. It said the subsidies undermine long-term energy independence and the fight against climate change and harm air and water quality in U.S. communities, especially communities of color.
One of the top fossil fuel breaks is called intangible drilling costs, which allows producers to deduct most costs from drilling new wells. The Joint Committee on Taxation, a nonpartisan congressional panel, has estimated that ditching it could generate $13 billion over 10 years.
That may mean cash in the government's hand, but the bill is paid by American consumers and businesses. We said that a vote for Joe Biden was a vote for higher energy prices, and that’s already proven to be true.
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