Energy Headlines, Links, And Comments -- May 24, 2022

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here.

All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them. 

RBN Energy: will high crack spreads be enough to balance refined products markets, part 2. For me the answer is irrelevant. It will be what it will be. The importance of this post today is the understanding that:

• oil production is not the primary mover for the price of gasoline;
• takeaway capacity, in general, is no longer an issue, except in places like New England and Long Island;
• the high price of gasoline is being driven by refinery issues, and it's a lot more difficult to manage refinery issues than drill, produce, and transport more oil.

Scholtz: here's a guy that really does prove that life imitates art.

• in this case, Germany's Chancellor Olaf Scholze sounds just like Sgt Schultz (Hogan's Heroes)
• Scholz is imploring oil- and gas-producing countries to increase production to help lower fuel prices
• helllloooo ... it's not a lack of oil -- it's a lack of refinery capacity, regulations, yada, yada, yada, and not oil
• in addition, Germany continues to shut down their paid-for and emission-free nuclear power plants and will go back to coal if they need to (and they will need to)
  
• in addition, one of the world's largest oil "reserves" is just across the border (and perhaps even under German soil): the Paris Basin
• so, Chancellor Scholz meet Sgt Schultz

OPEC+: some general comments.

• I'm sure the Saudi Arabian minister of energy is aware of the refinery issue despite continuing to suggest it's all about lack of space capacity;
• he seems to be speaking about spare capacity with regard to OPEC+ but he also seems to imply it's a global issue, affecting both Russia and the US
• if that is indeed the case, a lack of spare capacity in all three regions (US, Russia, and the Mideast), it is for different reasons among all three
• Saudi is strengthening its ties and commitment to Russia based on headlines in the news yesterday;
• I am not sure what that is all about, but my hunch it has to do with the personal feelings that the king-in-waiting has with the king-in-Washington (DC)
• Saudi talks about lack of investment that is causing the current lack of "spare capacity." Again, he must be referring to lack of adequate facilities worldwide to meet specific refined product demand, like gasoline and diesel, particularly the latter

Russia:

• lest folks forget it, there are (at least) three four five main components when it comes to Russia's balance of payments and the oil sector
• production: long pole in tent -- western oil service companies have now departed Russian oil fields, taking their technology, spare parts, financial capital and expertise with them. Over time, the mainstream business media (Forbes, Bloomberg, CNBC) will start to write about this.
• new markets: huge cost to shift from one market to a new market; in this case, switching from Europe to China.
• finding new markets: apparently a record number of tankers carrying Russian oil are sitting out at sea waiting for a destination
• some 62 million barrels of Russia's flagship Urals crude oil, a record amount, is (are?) sitting in vessels at sea, data from Vortexa, as traders struggled to find buyers for the crude oil. Link here. 
  
• transportation:
• to Europe: relatively cheap; pipelines -- including brand new pipelines -- are an incredibly inexpensive and efficient way to move crude oil, natural gas, and refined products
• to Asia: sea-going tankers
• payment: new customers (i.e., China and India) won't pay top dollar for Russian oil; 
• they are getting Russian oil and a huge discount; 
• must drive Putin nuts if anything drives him nuts, which I doubt, except losing his yacht to the Italians
  
• embargoes:
• Germany expects EU embargo on Russian oil within days. Link here.
• does anybody remember the OPEC embargo against the US decades ago; is this now Europe's turn to see what an embargo means -- although for completely different reasons.
  
• so, where does this lead us? Well, back to production, here it is, right on cue, from Bloomberg News via the Financial Post: Putin's state oil champion suffers biggest production drop. Ya gotta love it. Link here.

US pipelines:

• FERC is focused on approving (and apparently has approved) new pipelines that will get more US natural gas to the (Texas/Louisiana) coast for export to Europe; think: Berlin Airlift at height of Cold War.
• an aside, unrelated to pipelines for natural gas exports, the New England region has shown no interest in any new natural gas pipelines
• one can say the same for California, but California, unlike New England, has other issues -- specifically geology and seismic activity that does not favor pipelines.

7-handle:

• speaking of California, signs for $7-gasoline are now popping up all over Los Angeles;
• the good news: the high price of gasoline is a non-story in southern California now that everyone is driving EVs and vacationing in the outrageously expensive theme parks where they can avoid issues like the US economy;
• JPM has a note on the price of gasoline, suggesting the US retail price will surge another 37% by August to a $6.20 / gallon national average; to get to that average, we're going to see some gasoline with an 8-handle
• if you do go to that link, be sure to read the additional comments; one knows immediately who understands what is going on by the questions and comments being made;
• for example, as soon as someone asks what price crude oil needs too reach to see $6.20 gasoline immediately tells me that individual is not paying attention;
• again, it's a refining issue now; flood the nation with oil from the SPR and the price of gasoline won't drop; nor with the price of crude oil, for that matter -- at least not enough to make a difference.

There two most interesting stories coming out of Washington (DC) or wherever Biden was yesterday. The first had to do with the price of gasoline; the second had to do with going to war with China. We'll cover the second story elsewhere; this post is focused on energy.

• President Biden has thrown in the towel on high gasoline prices, now thanking American citizens for their resolve in supporting him, supporting his policies, supporting $10-gasoline, supporting likely electricity outages this summer all in the name of energy transition. 
• we'll see how ths plays in Peoria later this autumn
• Jen Psaki left town just in time: how does anyone explain why world leaders aren't even taking Joe Biden's phone calls any more when it comes to oil?

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here.

All my posts are done quickly: there will be content and typographical errors. If anything on any of my posts is important to you, go to the source. If/when I find typographical / content errors, I will correct them. 

Later, May 25, 2022: with regard to the second story --

• the US policy on Taiwan is: ambiguous
• in Japan last week, President Biden clearly said the US would defend Taiwan if invaded (by the Chinese)
• the next day, the White House walked back that declaration and said the US policy regarding Taiwan has not changed: the policy remains officially ambiguous (wink, wink).