The following major events are unfolding concurrently. I'm going to disect them individually below. Remember, just ~30 months ago Joe Biden said he was going to end fossil fuels and put oil and gas executives in jail.
- US, Canada, and the 5 G7 oil importers are set to impose a "price cap" on Russian Oil. Russia has said they will reduce exports by 1MM per day and refuse to sell to anyone not willing to pay market.
- US is draining its SPR at histroic rates. We are at early 1980's levels and falling toward levels required to maintain basis international treaty.
- OPEC+, no doubt paying attention to the above, just announced a 2MMBPD production quote cut.
- With middle distillate (jet fuel, diesel, etc) inventories running short in the NE and West Coast, US is threatening domestic refiners with a ban on refined product exports.
- US now "re-evaluating its relationship with Saudi".
US, Canada, and the 5 G7 oil importers are set to impose a "price cap" on Russian Oil. Russia has said they will reduce exports by 1MM per day and refuse to sell to anyone not willing to pay market.
The plan is to use Europe's power in the insurance world to attempt to prevent oil ship owners from allowing their ships to haul Russian oil that is not sold at the capped price. Europe does not carry the policies on all of these ships, but does have sway. Russia has promised to simply refuse to sell oil at the cap but rather insist on pricing at the market. The US is supporting this effort despite the fact that the US is ostensibly buying zero Russian oil right now. The risks are huge. If Russia holds to their promise, global oil on the market will fall by 1MMBPD. This would have a dramatic impact on pricing for everyone, including US buyers. Oil is a global market. It doesn't matter who buys what oil, all that matters is global supply and global demand. If Russia drops exports by 1MM, whoever is getting that 1MM now, will be trying to buy the 1MM that is going elsewhere now. Prices go up.
US is draining its SPR at histroic rates. We are at early 1980's levels and falling toward levels required to maintain basis international treaty.
Soon, the US will have to stop using its SPR as it will be illegal and structural issues in the now empty caverns will become a problem. Saudi Arabia, seeing this, timed their production cut to impact markets as the US takes its foot off of the SPR pedal. This is no coincidence. OPEC is all business all the time.
OPEC+, no doubt paying attention to the above, just announced a 2MMBPD production quote cut
Already addressed above, OPEC sees the writing on the wall and they are ready to see prices go back over $100.
US now "re-evaluating its relationship with Saudi".
The current US Administration has created this problem. They went to the SPR well to reduce oil prices while not contemporaneously voicing support and outreach to domestic producers. This has opened the door for OPEC to step on our throats. Now we are going to "re-evaluate". What that means is that the same people that have had bad solutions for the last 18 months are going to put forth more bad solutions. Some have suggested "NOPEC" and that we will sue OPEC in international courts. However, the US has been the bigger market manipulator over the last year selling SPR barrels into international markets. The lawsuit will fail. And, as it is being litigated, Saudi might just refuse to sell oil to America (they currently supply us over 1MMBPD). What then? Another war over oil? What happened to "ending fossil fuels"? Why not just back US producers with vocal and financial support rather than threaten new taxes and more regulation at every turn?
With middle distillate (jet fuel, diesel, etc) inventories running short in the NE and West Coast, US is threatening domestic refiners with a ban on refined product exports.
This is another abysmal idea. The NE and CA are short middle distillates because of their decades long war on refiners and because of refinery closures during COVID. Those states are now threatening refiners with more taxes and ever more regulation. Last week Valero was threatened again by the CA energy regulator who demanded a response in 24 hours. Valero responded. The Biden Admin, as they did in November of 2021, is once again threatening to ban fuel (refined products) exports. This would not only absolutely screw over Europe (what's the point of supporting the Russian price cap if we are willing to screw Europe by banning US fuel exports?), but it would very likely cause gas prices to increase across the US. The PADD 3 Refineries (11MMBPD of capacity), which make up the bulk of US refining capacity, would see their storage tanks fill very quickly at today's run rates if they can't unload their bottoms and other products to foreign buyers. When storage tanks are filling, refineries have no choice but to reduce runs.
Conclusion
None of these items address the noose that Biden put around the heads of US producers with his jail threats. None of these discuss the lack of capital available to producers due to years of ESG policies and threats to Wall Street by the likes of Blackrock. We are in a very scary situation with incompetent people controlling the levers. Jennifer Granholm needs to resign and be replaced by someone who understands global energy markets.
- US, Canada, and the 5 G7 oil importers are set to impose a "price cap" on Russian Oil. Russia has said they will reduce exports by 1MM per day and refuse to sell to anyone not willing to pay market.
- US is draining its SPR at histroic rates. We are at early 1980's levels and falling toward levels required to maintain basis international treaty.
- OPEC+, no doubt paying attention to the above, just announced a 2MMBPD production quote cut.
- With middle distillate (jet fuel, diesel, etc) inventories running short in the NE and West Coast, US is threatening domestic refiners with a ban on refined product exports.
- US now "re-evaluating its relationship with Saudi".
US, Canada, and the 5 G7 oil importers are set to impose a "price cap" on Russian Oil. Russia has said they will reduce exports by 1MM per day and refuse to sell to anyone not willing to pay market.
The plan is to use Europe's power in the insurance world to attempt to prevent oil ship owners from allowing their ships to haul Russian oil that is not sold at the capped price. Europe does not carry the policies on all of these ships, but does have sway. Russia has promised to simply refuse to sell oil at the cap but rather insist on pricing at the market. The US is supporting this effort despite the fact that the US is ostensibly buying zero Russian oil right now. The risks are huge. If Russia holds to their promise, global oil on the market will fall by 1MMBPD. This would have a dramatic impact on pricing for everyone, including US buyers. Oil is a global market. It doesn't matter who buys what oil, all that matters is global supply and global demand. If Russia drops exports by 1MM, whoever is getting that 1MM now, will be trying to buy the 1MM that is going elsewhere now. Prices go up.
US is draining its SPR at histroic rates. We are at early 1980's levels and falling toward levels required to maintain basis international treaty.
Soon, the US will have to stop using its SPR as it will be illegal and structural issues in the now empty caverns will become a problem. Saudi Arabia, seeing this, timed their production cut to impact markets as the US takes its foot off of the SPR pedal. This is no coincidence. OPEC is all business all the time.
OPEC+, no doubt paying attention to the above, just announced a 2MMBPD production quote cut
Already addressed above, OPEC sees the writing on the wall and they are ready to see prices go back over $100.
US now "re-evaluating its relationship with Saudi".
The current US Administration has created this problem. They went to the SPR well to reduce oil prices while not contemporaneously voicing support and outreach to domestic producers. This has opened the door for OPEC to step on our throats. Now we are going to "re-evaluate". What that means is that the same people that have had bad solutions for the last 18 months are going to put forth more bad solutions. Some have suggested "NOPEC" and that we will sue OPEC in international courts. However, the US has been the bigger market manipulator over the last year selling SPR barrels into international markets. The lawsuit will fail. And, as it is being litigated, Saudi might just refuse to sell oil to America (they currently supply us over 1MMBPD). What then? Another war over oil? What happened to "ending fossil fuels"? Why not just back US producers with vocal and financial support rather than threaten new taxes and more regulation at every turn?
With middle distillate (jet fuel, diesel, etc) inventories running short in the NE and West Coast, US is threatening domestic refiners with a ban on refined product exports.
This is another abysmal idea. The NE and CA are short middle distillates because of their decades long war on refiners and because of refinery closures during COVID. Those states are now threatening refiners with more taxes and ever more regulation. Last week Valero was threatened again by the CA energy regulator who demanded a response in 24 hours. Valero responded. The Biden Admin, as they did in November of 2021, is once again threatening to ban fuel (refined products) exports. This would not only absolutely screw over Europe (what's the point of supporting the Russian price cap if we are willing to screw Europe by banning US fuel exports?), but it would very likely cause gas prices to increase across the US. The PADD 3 Refineries (11MMBPD of capacity), which make up the bulk of US refining capacity, would see their storage tanks fill very quickly at today's run rates if they can't unload their bottoms and other products to foreign buyers. When storage tanks are filling, refineries have no choice but to reduce runs.
Conclusion
None of these items address the noose that Biden put around the heads of US producers with his jail threats. None of these discuss the lack of capital available to producers due to years of ESG policies and threats to Wall Street by the likes of Blackrock. We are in a very scary situation with incompetent people controlling the levers. Jennifer Granholm needs to resign and be replaced by someone who understands global energy markets.
