Oil prices are easing a bit as the Energy Information Administration (EIA)status report was as bit anticlimactic. I don’t think anyone would argue that the report was bullish, yet it failed to provide the fire power needed to keep the buying coming in the post covid price highs. The EIA reported that crude oil inventories fell by 8.0 million barrels from the previous week. That drop in supply, believe it or not, put supply 2% below the five-year average for this time of year. In other words, the covid oil supply glut is totally gone. Yet despite that, inventories increased by 0.7 million barrels last week and are about 2% below the five year, that happened even with another million barrel plus release from the Strategic Petroleum Reserve. That crude draw came as the EIA had the biggest crude adjustment in history which suggests that U.S. oil supplies have been tighter than the agency has been reporting.
Yet gasoline failed to live up to the bullish expectations. It did not help that Saudi Arabia cut the selling price of oil to India because of covid demand destruction, reminding traders that risk is still out there. Weekly gas demand came in at 8.86 million barrels a day, a drop of .12 which was less that the traders were looking for. Total motor gasoline inventories increased by 0.7 million barrels last week and are about 2% below the five-year average. Still, we saw a 2.9 million barrel drop in distillate supply reflecting more air travel and farmer planting demand, yet week over week demand fell. Refiners also ramped up less than expected. The EIA reported that U.S. crude oil refinery inputs averaged 15.2 million barrels per day which was 225,000 barrels per day more than the previous week’s average. Refineries operated at 86.5% of their operable capacity last week. Gasoline production decreased last week, averaging 9.1 million barrels per day. Distillate fuel production decreased last week, averaging 4.5 million barrels per day.
There is more evidence that the shale revolution, that the Biden administration is trying to kill, has made us less dependent on OPEC oil. The party that used to criticize the Bush administration for war for oil is now trying to slow the shale revolution that has made us the least dependent on OPEC oil ever. The EIA reported that in 2020, U.S. oil imports from OPEC hit the lowest level since they started to track it in 1973. The EIA says that because of increased domestic production of light crude oil, U.S. imports of medium and light crude oils have decreased while U.S. imports of heavier crude oils have remained comparatively stable. This trend has resulted in declining crude oil imports from OPEC member countries because OPEC has historically exported medium and light crude oil grades to the United States. In contrast, imports from Canada and other non-OPEC countries that have historically exported heavy crude oil grades have remained relatively stable. In 2020, crude oil imports from OPEC averaged 816,000 b/d, the lowest level in annual EIA data (which dates to 1973), while imports of 3.6 million b/d from Canada were the third highest on record, after 2019 and 2018. Canada produced record amounts of crude oil in 2019, which supported record U.S. crude oil imports from Canada of 3.8 million b/d. In 2020, U.S. crude oil imports from Canada fell 6% as total U.S. crude oil imports fell by 14%.
Of course, the Biden administration is trying to reduce Canadian oil imports by killing the Keystone pipeline and its anti-pipeline philosophy. This will be another reason why you will be paying higher prices for diesel and gasoline and they want you all to drive electric cars.
The EIA says that U.S. imports of crude oil from Canada have generally had lower landed costs (the price at the port of discharge, including charges associated with the purchase, transportation, and insurance) than crude oil imports from other countries. These low costs have encouraged U.S. crude oil imports from Canada. However, pipeline capacity to deliver crude oil from Canada to the Gulf Coast is limited, and the final delivery point for most U.S. imports of crude oil from Canada has been the Midwest.
So why are we killing pipelines. Oh yes, climate change! Now I remember. You have to drive up oil prices to have electric cars make sense. Forget the fact that there are reports of EV drivers going back to gas because electric cars do not fit their needs. A widely reported study from the University of California published in Nature Energy, looked at drivers who bought EVs between 2012 and 2018 and found that 18 percent of battery electric vehicle buyers switched back to gasoline-powered cars, as did 20 percent of plug-in hybrid buyers. The main problem cited by respondents to the surveys that the authors conducted was with charging times according to Oilprice dot com.
Instead of fighting wars for oil, the future may see wars over rare earth minerals. Zerohedge reported that, “China’s dominance in green energy technologies is rare earth metal production is very concerning to the International Energy Agency (IEA), who posted a stark warning Wednesday advising western governments to stockpile critical battery metals such as cobalt and lithium. IEA's warning comes as the next chapter in US-China tensions will be climate wars as energy transition investment ramps up with peak oil around 2030. Many Western countries and China have estimated net-zero carbon emission economies somewhere around 2040-2060. The need for western economies to become less reliant on China for rare earth metals, such as lithium and cobalt, is a necessity for independence from the East.
China has arguably been faster in adopting green technologies than western countries. Climate wars are much more than climate action and saving the planet - it's about the superpower race between the U.S. and China and who can deliver climate change solutions and clean-tech. And then it will be a race to clean up the mess left by strip mines and toxic waste. Not to mention how we have to build massive amounts of toxic solar panels and wind turbines that can’t be recycled. That huge amount of release will have to be taken up reducing farmland that will be switched to solar farms.
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The PRICE Futures Group
Senior Market Analyst & Author of The Energy Report
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