Empty Handed. The Energy Report 07/18/2022
By Phil Flynn On July 18, 2022 - 7:45 AM · In Market Commentaries, Phil Flynn Energy Report
Joe Biden came back from Saudi Arabia empty-handed. The president suggested some vague promises that Saudi Arabia would raise oil production. Yet despite all the talk and the fist-bump with Crown Prince bin Salaman heard around the world, it seems the Saudis have a different perception of what happened.
Biden said, “I’m doing all I can to increase the supply for the United States of America, which I expect to happen. The Saudis share that urgency. And based on our discussions today, I expect we’ll see further steps in the coming weeks. The White House released a statement, “Saudi Arabia has committed to supporting global oil market balancing for sustained economic growth. These steps and further steps that we anticipate over the coming weeks have and will help stabilize markets considerably.”
Yet is that different than anything Saudi Arabia has said all along? It is not. Bloomberg News reported that, “del Al-Jubeir, Saudi minister of state for foreign affairs, said supply decisions would be based on ongoing assessments of the market. He also stressed that Saudi Arabia would continue to work with OPEC+, the alliance including Russia — whose oil revenues the U.S. is trying to squeeze because of its invasion of Ukraine. “We assess demand, and we work in consultations with other oil producers in OPEC and OPEC+ to make sure that we have adequate supplies,” the Saudi minister told a separate news conference. “We base that on fundamentals, not on speculations, not on hysteria, not on geopolitics.”
So, Biden could have appealed to US energy producers instead of begging Saudi Arabia. He could have reversed his anti-fossil fuel production policies here in the United States. He could commit to not dismantling the US oil and gas industry and instead of being vindictive and small, he was wrong about the US oil and gas industry when he said that they were price gouging. He should work with them to help the US become the dominant oil and gas producer in the world. Biden can’t continue to live in his green delusions. The US economy can’t handle his lack of understanding of how the energy sector works.
The President, who believes that he can electrify the nation and push through electric cars, hasn’t really thought about the longer-term ramifications of how to dispose of batteries. He has not considered what we will have to do to improve the power grid. This comes at a time when many parts of the country are under stress and may not be able to keep the lights on.
U.S. Treasury Secretary Janet Yellen, the person who tried to get angel investors to just stop investing in fossil fuels, now is warning that the US and its allies should not allow China to use its market position and key raw materials technologies to disrupt global economies. Of course, Yellen didn’t seem to act to stop Russia from disrupting global economies. U.S. Treasury Secretary Janet Yellen’s supportive policies in Europe allowed Germany and the rest of Europe to become more dependent on Russia for fuel. Now she is going to try to transform our economy into a power system that’s more reliant on China and expects us to believe that China won’t use its market position on rare earth minerals as a weapon if they believe it will help them.
Obviously Yellen is very naive when it comes to China and its ambitions. She is also very naive to believe that a price cap would have actually brought down oil prices or reduced oil revenues to Russia.
Oil prices are also getting support from a strong dollar. Fed officials last week downplayed the thought that they would raise interest rates by a full basis point. The Fed coming off those fears led to a break in the dollar which had hit a 20-year high and caused a risk-on environment in futures had seen hedge funds run to the sidelines in fear.
Reports over the weekend that Libya lifted its forced mature on oil prices were welcome but now problems in South Africa are reducing the excitement about that good news on supply. Bloomberg News reports that Sasol Ltd., South Africa’s largest fuel producer, declared force majeure on the supply of petroleum products due to delays in deliveries of crude to the Natref refinery it owns with TotalEnergies SE, leaving just a fraction of the country’s fuel-production capacity still operational. Natref, a 108,000 barrel-a-day plant, was forced to shut down after the late oil shipments, the company said in a statement. “Sasol Oil will not be in a position to fully meet its commitments on the supply of all petroleum products from July 2022,” the firm said. The shutdown means the whole of South Africa’s oil-refinery fleet is out of action after a string of other facilities suspended production over the past two years. As a result, the country’s monthly petroleum product imports are set to as much as a triple by next year from pre-pandemic levels, energy consultant Citac said in a May report.
Gasoline prices have fallen to 4.521 cents per gallon as refiners ramped up production of gasoline to over 10 million barrels a day and we did see some moderation in demand after the 4th of July holiday. It looks like retail gasoline prices are going to be close to a bottom here we might see a little bit more downward pressure but then we should see prices stabilize and start to work their way back up. We do not expect to see the aggressive price increases as we saw a couple of months ago but we do believe that the downside on gasoline at this point is limited.
Diesel prices have also bottomed and there’s still concern about tight diesel supplies globally. The biggest concern of course is if Russia decides to cut off gas to Europe. Increasing fuel usage will tighten the diesel market that’s already too tight. Use this break as an opportunity to lock in prices going into winter. We think the downside on diesel from this point is limited.