A Most Interesting Week So Far -- June 23, 2022

Updates

June 24, 2022: just one day after this post, another writer noted the same thing -- with regard to LNG, it was a huge day. 

Original Post

The usual disclaimers apply. In a long note like this there will be content and typographical errors. Facts and opinions will be interspersed and it will be hard to tell them apart. This commentary, like most commentaries, is not ready for prime time. 

Re-posting:

Wow, wow, wow: Chevron - Cheniere partnership. Link here. 

Chevron Corp on Wednesday signaled its move into the booming U.S. liquefied natural gas export market with two agreements designed to increase sales of its shale gas to global markets.

Top U.S. gas producers have been striking deals with LNG developers to tap skyhigh global prices with demand forecast to double by 2040. The United States is expected to become the largest LNG exporter this year, leapfrogging Australia and Qatar.

In deals disclosed on Wednesday, Chevron agreed to buy 2 million tonnes per annum (mtpa) of LNG each from units of Cheniere Energy Inc and Venture Global LNG. The deal with Cheniere would include first deliveries in 2026 and continue through 2042.

I don't know if folks are paying attention but that was from Reuters; it's not a CVX press release. Let's re-post -- for the second time -- that second paragraph:

Top U.S. gas producers have been striking deals with LNG developers to tap skyhigh global prices with demand forecast to double by 2040. The United States is expected to become the largest LNG exporter this year, leapfrogging Australia and Qatar.

I found it amazing to read all those press releases and articles about the huge LNG export terminal Qatar was building with several US partners, and then I did the math. 

Top U.S. gas producers have been striking deals with LNG developers to tap skyhigh global prices with demand forecast to double by 2040. The United States is expected to become the largest LNG exporter this year, leapfrogging Australia and Qatar.

So, that was the first thing.

Now, the second thing:

Is something funny going on in Washington (DC)?

The CDC has not updated its Covid vaccine numbers since Thursday of last week. I update those numbers every day and the CDC has not updated those numbers since Thursday, last week. [Later: I see a note now that says the CDC will be updating the numbers only once a week, by 8:00 p.m. Thursday nights.]

On Friday, last week, June 17, 2022,  the agency said the numbers would not be updated until Tuesday in observance of Juneteenth, but here it is, Thursday morning and the numbers have not been updated. 

The one thing that Americans are no longer watching is the Covid vaccine rollout, but to go a week without updating the numbers is very strange.

I probably would not have posted that Covid vaccine observation but now we have the EIA announcing that they won't be posting their weekly petroleum report due to "systems issues." 

I doubt anyone believes that all of a sudden we have "systems issues." 

My hunch: the refining number was going to absolutely destroy Biden's most recent argument. We'll come back to that later. 

Again, the numbers show that US refiners are working at highest capacity ever, at least at 94% based on last week's report. One really can't get much better than that. The IRS might reach 60% of their operating capacity but to do that they need to shred a lot of paper documents just so revenue agents can see their desks.

Now, back to Biden's most recent argument. 

Keystoning and gaslighting the American public.

Has anyone followed the progression of Biden's speeches on the price of gasoline?

First: he blamed it on the oil companies not producing as much oil as they could. This is after he killed the Keystone XL and killed further development of federal oil plays. And it turned out there was not shortage of oil. He foolishly released a record amount of oil from the SPR when oil supply was not the problem.

Second: I thought the problem was fracking -- not enough frackers. We were drilling enough wells, but we weren't completing them. It turned out I was wrong on that -- although maybe not as wrong as I thought I was. But isn't this interesting: if fracking was the problem, did anyone notice that Biden did not urge more fracking? LOL. That was absolutely something he could not say: more fracking.

Third: finally, he figured it out. The chokepoint was refining. Plenty of oil getting to the refiners, but refiners were not able to meet demand. The problem with that: the problem is that the refiners are working as hard as they can; there simply aren't enough refineries, mostly because the US government would make it prohibitively expensive to build one. So, he did not figure it out. I misspoke. I thought the same thing. Refining was the problem, but it's not. And so Biden moved down the supply chain.

But both Biden and I are wrong on that. If the refiners were/are the problem, wouldn't we see shortages of gasoline and diesel? There's no shortage of either. Yes, inventories of diesel are way, way down, but there's no shortage -- at least no shortage right now. For the "right" price, farmers can buy all the diesel they want. There are no photos of long lines of farmers waiting for days to get a truckload of diesel. Just high prices.

Fourth: and, so now, Biden moves down the chain to the service stations supplying gasoline and diesel at the pump. I'll post the link later, but Biden is now whispering his plea (it's not a demand, it's a begging, a plea) that service stations lower their prices at the pump. Link here.

Sixth: service stations are not going to lower the prices at the pump simply because the president is whispering pleas and begging. They will price their fuel based on supply and demand, and on the cost it takes to provide that fuel with a very, very meager profit margin. Service stations make their money on what they sell inside the store, not what they sell at the pump. So, if service stations don't help Biden out by bringing down the price of oil, what's next. Yup, one just moves further down the supply / demand chain. Oil production --> fracking --> refining --> service station prices --> consumer. 

Seventh: we should be seeing a speech any time now that consumers need to cut back on the use of gasoline, just as Jimmy Carter did decades ago. Except I don't think that's going to happen, but I wouldn't bet more than a couple of dollars on that. So, we'll see.

By the way, know what will temporarily save Biden's back end on the price of gasoline? He needs something else on which to blame the high price of gasoline. The Ukraine war is not the reason -- Jay Powell said as much -- so Biden needs to find some new big thing to blame. Yup, you guessed it. One huge hurricane in the Gulf of Mexico and the price of gasoline will soar and Biden will be able to blame nature. 

Oh, with regard to refining, I said I would come back to that. 

Not only do the refining numbers contradict Biden, even he has moved on. See above. He is now down to blaming the service stations, as noted.

Next subject: does anyone really pay attention to what Biden says? 

Exhibit A: his "yellow paper" on what he has done to bring down the price of gasoline. Look at this list. Most such lists lead with the most important item of the argument, the one that will have the biggest impact; the one that will best support one's argument.

His "five key actions" reads worse than any of David Letterman's "Top Ten Lists."

But look at this list: the very first thing he mentions is a federal gasoline tax headline. Even Americans who cannot do math understand that this will lower the cost to fill up their SUV from $100 to $98 and change. 

And from there, the list gets worst. And, oh by the way, the federal gasoline tax holiday has not been enacted; only Congress can do that (and apparently they have no interest in doing that). His list is simply things for which he has asked. It's a pretty pathethic list considering the actions he has taken, the EPA has taken, and the FERC has taken prior to all this. 

By the way, Biden said a federal gasoline tax holiday would have little affect on the "highway fund." Oh, really? If so, why not lower the gasoline tax permanently or get rid of it completely. With all the EVs coming to market, the US won't be collecting that tax any way by this time next year, according to Cathie Wood. 

But we need to move on.

Without question, Jay Powell's testimony yesterday was absolutely clear. The Fed -- i.e., Jay Powell -- perhaps one of their most reasonable, centrist if not dovish members of the board -- has had it with the Biden administration. Jay Powell threw Biden under the bus at every opportunity. His reply to Elizabeth Warren was a classic. As well as his statement regarding the inflation timeline. He clearly said it began well before Putin's War. 

There's no question that the Fed is going to raise rates another 75 basis points the first chance he gets.

He knows how bad it is and wants to "save" the US from Turkish inflation. 

The only reason he won't raise rates sooner is a) it would send the falling stock market down even faster and deeper; b) it would definitely put the US into a recession (we'll be there anyway); c) he doesn't want photos of Wall Street investors jumping out of windows; and, d) he wants to keep his job.

This week has been incredibly interesting:

• Jay Powell's testimony: two parts to his testimony. One covered inflation; the second concerned the price price of gasoline. With the first, his gloves are off; huge increase in Fed rate coming. With the second  issue, the price of gasoline, he clearly threw Biden under the bus.
• President Biden's progression on where to assign blame regarding the price of gasoline was eye-opening.
• US agencies delaying reports, not by hours, but by days, with no reasonable explanation, and oh, by the way, no timeline for when they might actually post those reports.
  
• LNG. Reuters acknowledgement that the US LNG exports will leapfrog Australia and Qatar even as global demand forecasts that the demand for LNG will double -- double -- by the year 2040.

By the way, did you all hear that the EU wants to ban the manufacturing all off ICE vehicles by 2035? Germany has vetoed that. And Germany is the greenest of all the EU countries. 

Oh, back to that last item:

• LNG. Reuters acknowledgement that the US LNG exports will leapfrog Australia and Qatar even as global demand forecasts that the demand for LNG will double -- double -- by the year 2040.

Even as oil is tanking and shares of oil companies are falling, who is buying more OXY? Almost ten million more shares and now owns upwards of 25% of that company? Yup, Warren Buffett. I did not see that one coming. He has fallen in love with OXY. Sort of like when he fell in love with Burlington Northern, a railroad, and perhaps one of his best investments ever. When he bought the entire railroad.  

By the way, 20-year contracts are the "norm" for LNG deals. Link here.