In June, we reported that will overall US Nat Gas exports had exploded thanks to soaring LNG flows to Europe which has grown increasingly desperate for any “ friendly” nat fuel now that Russia has almost shut off all pipelines towards Europe, in the process pushing US nattie prices sharply increased – if nowhere near where they are in Europe currently.
And while these exports fizzled after the Freeport LNG explosion in June, it was clear that nat fuel prices (and to a lower extent, inventory) in the US will be a factor not only of domestic demand, but increasingly also of European imports through the US.
Exactly the same of course , can be said designed for oil, which is seeing developing demand in Europe – which finds itself progressively locked out of Russian essential oil output, which is expected to shrink even more once a Russian oil ban is imposed at the end of the year – as part of gas-to-oil switching which is becoming increasingly widespread in Europe, and is exactly why US crude sales overseas are also set to hit fresh new records through next year as American oil increasingly requires market share in Europe.
Earlier this month, weekly government figures showed an unprecedented 5 million b/d of US crude being exported. Shipments are ready to average over four million b/d over the following few months and into next year, according to the most optimistic within the oil industry.
And just like in the case of gas, rising oil exports in order to Europe mean not only higher US oil and gas prices – as supply/demand dynamics from the two asset classes converge – but also shrinking ALL OF US inventories which end up in Europe. Which is a problem for US oil because while prices are dropping for now, they are unaware of the fact that commercial US stocks have slumped to close to record lows.
So wouldn’t you know the Biden Administration – the same administration that has been draining report amount of oil from the ALL OF US strategic petroleum reserve in hopes of pushing gas prices lower by the midterms – now wants to limit gasoline exports to Europe.
That’s the message Power Secretary Jennifer Granholm sent last week in a letter imploring seven major refiners in order to limit fuel exports. The WSJ obtained a copy of the letter ( see below ) which the Administration did not release publicly, but has since leaked out courtesy of Bloomberg’s Javier Blas and others.
Granholm warned that gasoline inventories on the Eastern Coast are at a near-decade low, and diesel stocks are nearly 50% beneath the five-year average over the region. And while she failed to address it – since the SPR drain is hardly something the White House is proud of – complete crude oil inventories including the SPR have seen a spectacular collapse since the Ukraine war.
“ Given the historic level of U. S. refined item exports, I again urge you to focus in the close to term on building inventories in the United States, rather than selling straight down current stocks and further maximizing exports, ” she writes.
“ It is our hope that businesses will proactively address this particular need, ” she adds. “ If that is not the case, the Administration will need to think about additional Federal requirements or even other emergency measures. ” In New Jersey they call that an offer you can’t decline.
This, as the WSJ information , is really a political escalation from Chief executive Biden’s June command in order to refiners to immediately cheaper gasoline prices. As average gasoline costs nationwide have fallen in order to $3. 88 from regarding $5 in mid-June, he’s been taking a media victory tour. However , the drop in prices is largely a function of the market planning on an imminent recession, hardly something worthy of a triumph tour, and in any case, Biden can thank People in america for driving less.
Yet fuel storage space levels are running low heading into hurricane period when it’s not unusual to get Gulf Coast refineries to be damaged or shut down. The particular Administration fears a refinery outage that causes fuel prices to spike in the runup to the November election. Hence, Granholm’s harmful letter.
But , as the WSJ editorial board clarifies , the problem isn’t Oughout. S. exports . It’s the political and regulatory assault on U. S. production and refining . One culprit is the 2019 drawing a line under of the Philadelphia Energy Solutions refinery, which removed regarding 335, 000 barrels a day of refining capacity in the Northeast. This made the location more dependent on Gulf Coast and overseas refineries.
Additionally , fuel storage levels would be much higher in the Northeast if not for New York state’s natural gas pipeline blockade, which has made the region more dependent on oil for energy. One-third of New England inhabitants still use oil to heat their homes, and New York this month is usually generating more electricity from oil than from sun or wind.
Most ironic, however , is that the Granholm export threat is also a punch in the face to European allies trying to diversify energy resources from Russia. Fuel supplies are limited globally amid sanctions on Russia, which had accounted for 40% of Europe’s oil imports. Europe has had to look elsewhere for diesel energy, which some manufacturers and power generators are embracing as a substitute for natural gas. U. S. refiners have recently been exporting more fuel to Europe, yet Granholm is now telling these to stop.
Restricting fuel exports any more counterproductive Biden policy on fossil fuels that would simply drive up global gas prices, including U. T. imports. As the WSJ concludes, “ Granholm’s bullying of energy companies shows how little she understands about energy markets. ”