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Welcome back to the 39th edition of Thirsty Thursday, an inventory report from RARE PETRO! Things seem to be getting a little more stressful with the conflict overseas. February inflation increased 7.9% which is a new 40-year high. Now the cocktails are less of a party aid and more of a way to wind down at the end of the day. Because of this, we recommend the classic Scotch and Soda. Three ingredients and one glass should get your mind right for relaxation.
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It is never a good idea to drink alone, especially in these times. Go ahead and send this report to a pal or two so you can enjoy a couple of cocktails and the data presented in this report. But that is enough time wasted on formalities. Let’s start with some inventory data.
The EIA predicted a small draw of 650,000 barrels but actually reported a near 2 million barrel draw.
The EIA made a prediction for a drawdown of a similar magnitude but reports the exact opposite with a build that is closer to three million barrels.
According to the EIA data, we have spent more time in 2022 decreasing our domestic inventories. Even the occasional 2-4 million barrel build is counterbalanced and more within a matter of a few weeks. This leaves us just a little bit lower than the historical 5-year range, but on the low end nonetheless. Current world events are likely not going to boost our domestic reserves, especially since the US committed to banning imports of Russian energy.
Now for those commodity prices which have (spoiler alert) taken a wild in the past 12 hours. Last week markets closed around a $110 contract, but oil climbed as high as $130 in the midst of all the hype. Then the UAE had to go and flap its mouth almost causing the largest price drop in 2 years late Wednesday (3/9/22) evening. The United Arab Emirates said that it supports OPEC increasing oil production to bring more oil to a market that desperately needs it, especially since the USA banned Russian energy. This “burden” of increasing production would likely fall on the shoulders of the UAE and Saudi Arabia as they are really the only members in the organization who could produce a significant amount more. Other members of OPEC have been over-complying which is a professional way to say they are unable to produce more oil in the short term. It seems that someone was not too happy with the UAE’s comments as they have already walked it back a bit saying that they “favor production increases and will be encouraging Opec to consider higher production levels.” This brought WTI prices back up about 5% before falling back downward. This is likely going to be a volatile one as the world works out a solution to replacing Russian energy.
Natural gas has been much more calm than WTI. The preice was above $5, but has since come to settle around $4.50. This is truly a privelege as the US is able to source its own natural gas demand. Europe, however, is in a different boat. Russia reacted to threats of sanctions by saying they would stop delivering all natural gas to Germany through the Nord Stream 1 causing European gas prices to rise more than 30% in one day.
The average American household uses just shy of a megawatt-hour’s worth of energy in a month. That would bump your power bill to about $250 in the European market. Let’s hope we protect our energy independence so that we don’t struggle the way Europe is. Paying $250 for electricity does not leave a lot of room for purchasing other goods in an economy with record inflation.
Gasoline continues its downward trajectory to lower than historical ranges. This weeks draw was 1.4 million barrels, large than last weeks by about a million. While we are currently within the historical 5 year range, the trendline suggests we might fall below in the summer. This is all dependent on how much consumers curb their consumption of gasoline which may not be much considering gasoline is an inelastic good.
As long as you haven’t been living under a rock you have likely seen that gasoline prices are up all over the country. The current average for a regular gallon of gasoline in the US is $4.318. The cheapest gasoline is in Kansas at $3.817. Too bad I’ve decided to drive back to Colorado this weekend. On second thought, it is probably better I do that sooner rather than later.
Disitllates took a heavy nosedive and propane seems to be following in its example. Worldwide distillate markets are still tight, and this will certainly factor into higher fuel and distribution costs all over. Inflation is here to stay folks.
Still, keep your eye on the larger time frames. We reaped the benefits of incredibly cheap energy for 2 years. That was fun, wasn’t it? Now we have to deal with increasing scarcity. Buckle up, ladies and gents. It is likely going to be a wild ride. Make sure to follow us on LinkdeIn so you don’t miss any of our other content or analysis. Thank you for joining us this week. Cheers!
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