The Phil Flynn Energy Report
Bad Actors
Oil prices, gasoline futures, and heating oil futures are all taking a breather 1 day after Joe Biden blamed the increasing cost of gasoline on bad actors and pandemic profiteers. Anyone who’s been reading The Energy Report for the last couple of years realizes that it isn't bad actors or pandemic profiteers who are to blame, but a combination of supply and demand fundamentals mixed in with bad energy policy by the Biden administration.
It’s also been Hurricane Ida that has taken a historic amount of oil offline in the Gulf of Mexico. Supply isn’t coming on as quickly as people thought and it’s keeping gasoline prices high. U.S. petroleum inventories overall have fallen to the lowest level for this time of year since 2014. Overall gasoline diesel and crude stocks are below the 5-year seasonal average and below pre-pandemic levels.
The other thing we see when we look at the cost of crude oil is that global demand is exceeding supply by at least 2.5 million barrels per day (bpd); we're also seeing a big drawdown in inventories, especially here in the United States. That, of course, is causing the cost of oil to go up and if oil goes up, so does the cost of gasoline. It’s happening on a global scale.
It’s simple Economics 101. So, whatever evidence Biden says he has regarding this “pandemic profiteering” situation, it’ll be interesting to see. He’s probably looking to get some political cover because voters are angry that gasoline prices are going up and the president's energy policy is partly to blame.
Oil and natural gas production in the Gulf of Mexico is still coming back on, but only slowly. The Bureau of Safety and Environmental Enforcement reports that 28.24% of Gulf of Mexico oil production is shut in, which is about 513,878 bpd. 39.40% of Gulf of Mexico gas production is still shut in, totaling 8 78.63 MMCFD per day.
If you think you have hurricane fatigue now, I wouldn’t look at the weather map in the Atlantic because it’s very active right now. 4 tropical waves could become major storms, but it looks unlikely— at least at this point— that any of those storms will make it into the Gulf of Mexico. The risk of those storms making it in the Gulf of Mexico seems to be lessening, which may be one reason why oil prices may be pulling back.
Higher for longer! Bloomberg News reports:
The world is facing high energy prices for the foreseeable future as oil and natural gas producers resist the urge to drill again, according to Chevron Corp.’s top executive.
“There are things that are interfering with market signals right now that we haven’t seen before. Eventually things work out, but eventually can be a long time,” Chief Executive Officer Mike Wirth said Wednesday in an interview at Bloomberg News headquarters in New York. He expects strong prices for gas, liquefied natural gas and oil, at least “for a while,” without specifying a timeframe.
Reuter reports that:
Chevron Corp Chief Executive Mike Wirth said on Wednesday the company prefers to return money to its shareholders rather than use it to invest in solar and wind power projects.
The two renewable sources of energy generate low financial return for stockholders, Wirth said in an interview on CNBC. Investors could use dividend payments from Chevron instead to invest directly in renewable projects, he added.
"We rather dividend it back to shareholders and let them plant trees," Chevron's chief said.
Oil is facing resistance near the upper Bollinger band, but could skim along with it and consolidate for a move higher.
Natural gas is still very bullish! There’s panic buying in Europe and Asia!
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