Oil prices, gasoline futures and heating oil futures are all taking a breather one day after Joe Biden blamed the increasing cost of gasoline on bad actors and pandemic profiteers. Yet anybody who has been reading The Energy Report for the last couple of years realizes that it isn’t bad actors or pandemic profiteers who have been driving up prices but a combination of supply and demand fundamentals mixed in with bad energy policy by the Biden administration.
It also has been Hurricane Ida that has taken a historic amount of oil offline in the Gulf of Mexico. Supply is not coming on as quickly as people thought and that’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 five-year seasonal average and below pre-pandemic levels.
The other thing of course when we look at the cost of crude oil, global demand is exceeding supply by least two and a half million barrels a day we’re 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 is happening on a global scale.
It is simple economics 101. So whatever evidence Biden says he has about this pandemic profiteering situation, it will be interesting to see what he comes up with. He probably is looking to get 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 barrels per day. 39.40% of Gulf of Mexico gas production is still shut in, totaling 8 78.63 M MCFD per day. Even if you think you have hurricane fatigue now don’t look at the weather map of the Atlantic because it looks very active right now. Four 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. That is one reason why oil prices may be pulling back because the risk of those storms making it in the Gulf of Mexico seems to be lessening.
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 (NYSE:CVX).’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 Chief Executive Mike Wirth said that his company prefers to return money to its shareholders rather than use it to invest in solar and wind power jects. The two renewable sources of energy generate a low financial return for stockholders. 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 is panic buying in Europe and Asia!