A bullish American Petroleum Institute (API) report was released yesterday. And an announcement by OPEC plus that the Joint Technical Committee (JTC) of the Declaration of Cooperation (DoC) of OPEC and non-OPEC oil-producing countries will meet on August 31st giving the market more assurance that there is harmony and solidarity once again in the OPEC plus cartel. The meeting, coming at the end of August, is very supportive because it is clear that OPEC will not adjust their agreed upon increase of 40,000 barrels per day. The market may put aside its concerns at least for the moment about a resurgence of the covid-19 variant and instead focus on the reality of tightening supplies that we’re experiencing this very moment. The Biden administrations’s covid team has been in discussions about imposing lockdowns again.

The API report did not suggest any major drop-off in demand. They reported that U.S. crude oil supplies fell by 4.728 million barrels. What was surprising is they showed only a 126,000 barrel drop in Cushing, Oklahoma supply. Gasoline supply also fell by a whopping 6.226 million barrels. The drop suggests that gasoline demand is still rock solid even as the national average price ticked back up to $3.161 a gallon according to Triple-A. That is just shy of the high price that we set from the summer. Predictions that gasoline prices would sell-off after the 4th of July holiday seems to be incorrect.

Distilling inventories fell by 1.882 million barrels, a very respectable draw and very supportive to the overall complex. Now if the Energy Information Administration confirms this data, and we think they will, it is another reason to be long the market. Still, the biggest concern is the rise of the covid variant and that could hurt demand in the future. But at this point, unless we get into full lockdown mode, we’re going to continue to see the supplies dwindle.

Natural gas looks like it put in a short term top after the weather forecast seemed to ease up on the record heat but that doesn’t change the fact that in the big picture, we’re going to continue to see this market with the tightest supply versus demand situation that we’ve seen in many years. While the cool down may pull down prices, we’re still seeing record demand not only here in the United States but also for our LNG exports. The Energy Information Administration reported that LNG exports are at record high levels.

U.S. exports of liquefied natural gas (LNG) continued to grow in the first six months of 2021, averaging 9.6 billion cubic feet per day (Bcf/d). This average marks an increase of 42%, or 2.8 Bcf/d, compared with the same period in 2020 (according to the U.S. Department of Energy’s LNG Monthly reports and our estimates for June 2021, based on shipping data from Bloomberg Finance L.P.). During the summer months of 2020, U.S. LNG exports fell to record lows, but they set consecutive record highs in November and December.

U.S. LNG exports increased in the first half of this year as international natural gas and LNG spot prices increased in Asia and Europe due to cold weather. Rising global LNG demand once COVID-19 restrictions began to ease, as well as continuous unplanned outages at LNG export facilities in several countries (including Australia, Malaysia, Nigeria, Algeria, Norway, and Trinidad and Tobago), also contributed to increased U.S. LNG exports.

In Asia, colder-than-normal winter temperatures led to increased demand for spot LNG imports. Natural gas demand in the spring continued to rise amid low post-winter inventories, which contributed to unseasonably high natural gas prices. The high prices prompted a higher demand for more flexible LNG supplies, particularly from the United States.

In Europe, natural gas storage inventories were also low following a cold winter. Increasingly hot temperatures in May and June and greater natural gas demand from the electric power sector contributed to high natural gas spot prices. Europe’s natural gas spot prices have historically been lower than prices in Asia; however, this year, Europe’s natural gas prices are tracking Asia’s spot LNG prices more closely to attract flexible LNG supplies from around the world to refill storage inventories.

Natural gas is still the best bridge fuel to the green energy transition and is one that can provide massive amounts of energy-reduced greenhouse gas emissions and at the same time not destroy the global economy.

Janice Dean at Fox News reports widespread heat and humidity for the central U.S. today with advisories up for many states. Strong to severe storms will impact the Midwest with the potential for hail, damaging winds, and tornadoes. Smoke from the western wildfires continues to move across the country.

Thanks,
Phil Flynn

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