The Phil Flynn Energy Report
You May Not Want It
You may not want it but you’re going to need it: a frank bit of talk from BP’s chief executive Bernard Looney, who stated the obvious about the realities of the green energy transition and some of the misconceptions about the peak in global oil demand.
As reported by Bloomberg, when talking about the rush to move away from fossil fuels at the IP Energy Conference, the CEO said, “You can't defy gravity; you can't go against the will of society... I want to be the one in the room working out how to give people the renewables they want."
When it came to oil, he said, “People don't always want our product, but they need it... Oil and gas will be here for decades to come and is central to our business - fueling our transition into a lower carbon company.”
The rush toward the energy transition is one of the reasons that we’re seeing oil prices continue to surge. Yes, there are short-term factors like the Texas energy crisis that reduced production by over 5 million barrels per day (bpd), but the real thrust supporting prices is due to the massive cutbacks in oil and gasoline capex spending. Also, we’re seeing many investors pull back from energy investment.
So far, it seems that the surge in oil and gas prices hasn’t caught the attention of the Biden Administration and their silence surrounding the oil and gasoline price surge is deafening.
OPEC is also not in a rush to stop the surge. Dow Jones reported that Saudi Arabia, as expected, will move to give back its additional 1 million bpd production cut, but not all at once.
Amena Bakr of Energy Intelligence reported that in the previous OPEC+ meetings it was agreed that the easing of the cuts would be “gradual” and a maximum volume of 500,000 bpd of oil would be eased. But during the last meeting the group didn’t ease the cuts, so don’t be surprised if more than 500,000 barrels hit the market this time at the next meeting.
Oil closed above its long-term resistance of $63 per barrel. If we close above that again, and even better at $64, it should confirm technically the supercycle breakout trade talk you’ve likely been hearing. We were, of course, warning that the oil supercycle was coming and now some of the major banks and the commodity charts agree. The upside risks are still high, so hedgers should be hedged.
We should also get a big draw on Natural gas! Dan Molinski of Dow Jones writes that U.S. government natural gas data due Thursday is expected to show that inventories decreased last week by a massive, near-record amount as a winter storm in the middle of the country curbed production and kept heating demand high.
The Energy Information Administration (EIA) is scheduled to release its natural gas storage data for the week at 10:30 a.m. EST Thursday. The EIA is expected to report that gas storage levels have fallen by 334 billion cubic feet (bcf) during the week ended Feb. 19, according to the average forecast of 14 analysts, brokers, and traders surveyed by The Wall Street Journal.
Estimates range from decreases of 322 bcf to 347 bcf. The average forecast compares with a 145-bcf decrease in storage in the same week last year and a 5-year average decline of 120 bcf for that week.
S&P Global Platts Analytics said the expected plunge in inventories could rival the largest weekly storage decline on record, which stands at 359 bcf and was set for the week ended Jan. 5, 2018.
"During that week, a 'bomb cyclone' blasted its way across the U.S., prompting freeze-offs and pipeline-related outages in nearly all U.S. basins, dropping supply by 3 bcf per day," said S&P. A 334-bcf decrease last week would mean gas stocks totaled 1.947 trillion cubic feet, 13% below last year's total at this time and 8% below the 5-year average for this time of year.
December and January saw a mix of warm and cold spurts that kept in check a long-running storage surplus compared to the 5-year average. But a much-colder-than-normal February has caused the surplus to narrow significantly and quickly move toward a sizable deficit.
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