China manufacturing surges. The US is exporting a record amount of crude while imports have come to a screeching halt, states Phil Flynn of PRICE Futures Group.

Gasoline demand in the US is surging and diesel supplies are way below average.  Just some of the nuggets from yesterday’s EIA report. What does that tell us? Well, if you listen to the CEO of Chevron Mike Wirth, it’s clear that there is an upside price risk in the oil market in the second half of the year.

In an exclusive interview on the Claman Countdown with Liz Claman on the Fox Business Network, Mr. Wirth not only talked about a bullish outlook for oil but the fact that the US oil reserves will have to be refilled to “serve their purpose”. In other words, don’t get too caught up with the reports from the Energy Information Administration (EIA) that tell you the oil supply is at its highest level in three years and 9% above the five-year average because you must remember that Strategic Petroleum Reserve barrels are down 208.4 million barrels from a year ago. If you take that into account, then the oil supply is at record low levels for this time of year. Plus, if the Biden administration stays true to its vow to buy oil under $70.00 a barrel, then it will likely be a floor and might not ever give Biden and his team the chance to buy it.

CEO Mike Wirth also defended share buybacks with Liz Claman pointing out that Chevron produced a record amount of shale oil. They are a major producer in the Permian basin and according to the EIA, production in that basin hit an all-time high.

Mr. Wirth seemed to dodge Liz Clayman’s question about dealing with the Biden administration and the permitting process. He said that Chevron got most of the permits they needed but a lot of their drilling was done in Texas on private land where the permitting process is much easier. Yet he also seemed concerned about the Biden administration’s restriction on drilling in New Mexico and even larger concerns about longer-term projects in the Gulf of Mexico.

Industry insiders understand that if the US is going to avoid an energy shortage, clean Gulf of Mexico production is vital to secure America’s energy security. The good news is that the Gulf of Mexico Lease auction blocked by Biden will resume at the end of the month after Biden lost in court. As vindictive as this President is, it is likely that they will throw more hurdles at the permitting process. Industry insiders are now awaiting the Biden administration’s Willow decision as a guide to Biden’s next move on his war against US oil and gas companies and oil and gas workers and small independent producers and gas station owners.

The Wall Street Journal reported in its opinion piece that, “The Willow Oil Test for Biden the biggest pending US project awaits Administration approval. They wrote, “President Biden says the only barrier to more US oil production is recalcitrant drillers. Ok, Mr. President, then are you going to approve Alaska’s Willow project? The Journal goes on to say, “ConocoPhillips acquired its first Willow leases in 1999 in Alaska’s National Petroleum Reserve (NPR-A), an area the size of Indiana that Congress specifically set aside for oil development. It’s the largest pending oil and gas project in the US, with expected production of 180,000 barrels of oil a day, and 600 million over 30 years. The Willow plan has passed every environmental analysis, would employ union labor, and yield a revenue gusher. The final regulatory review was completed in early February, and it’s customary for the feds to give a final go-ahead within 30 days.

But the green left opposes Willow as a climate “bomb,” no matter what career scientists in federal agencies say. Willow completed its first federal environmental review in August 2020, only to watch a judge require another one. The Biden Bureau of Land Management (BLM) narrowed the scope from five drilling pads to three, and Willow recently passed another environmental review. The project, which will occupy 0.002% of NPR-A, would use the current Alaska pipeline and uses only temporary roads (built on ice in winter). It’s been signed off by every agency, including Fish and Wildlife and the Army Corps of Engineers. Willow is also a low-carbon project. BLM’s analysis estimates its average annual total domestic emissions will total 0.15% of 2019 US emissions levels, and 0.3% of anticipated 2030 levels. BLM also notes, “in the absence of production from [Willow], the energy produced from the Project’s oil would be replaced by other [sources]” around the globe. That includes such green meccas as Venezuela.

Willow is an $8 billion investment that will create 2,500 primarily union construction jobs, and hundreds more long-term positions. It’s estimated to generate as much as $17 billion in new revenue for the feds, the state of Alaska, and North Slope and Native communities.

The project has overwhelming support in Alaska, where the state House and Senate passed unanimous resolutions in support. Both GOP Senators and the state’s Democratic Representative are lobbying the White House for approval. Yet approval remains uncertain, in part because of doubts about anti-fossil-fuel Interior Secretary Deb Haaland. Within minutes of her own BLM scientists issuing their favorable environment review last month, the Interior issued a statement citing “substantial concerns” with Willow, with references to climate and subsistence hunting. Ms. Haaland has also stiff-armed a delegation of pro-Willow Alaskan Natives seeking a meeting. They finish in this must-read with, “Willow should be easy to approve, especially given the world’s growing energy security. If Mr. Biden kills this project, either outright or on the sly, no one should believe another word he says about energy or oil prices.”

Low refinery runs and another near-record crude adjustment led to an increase in oil supply. Yet gasoline demand surged to over nine million barrels a day suggesting that US gas demand is exceeding pre-covid levels by some measures.

EIA reported that US crude oil refinery inputs averaged 15.0 million barrels per day and were 31 thousand barrels per day less than the previous week’s average. Refineries operated at 85.8% of their operable capacity last week. The commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.2 million barrels from the previous week. At 480.2 million barrels, US crude oil inventories are about 9% above the five-year average for this time of year minus SPR supply is near record lows.

Total motor gasoline inventories decreased by 0.9 million barrels from last week and are about 5% below the five-year average for this time of year. Finished gasoline inventories were virtually unchanged while blending components inventories decreased last week. 

Distillate fuel inventories increased by 0.2 million barrels last week and are about 10% below the five-year average for this time of year. Total products supplied over the last four-week period is at 20.1 million barrels a day.

The natural gas price is coming back as cash prices are strengthening across the nation. Reports that winter may return with a vengeance are giving the market some support as well as the fact that some concerns that production from natural gas will start to peak in the coming months.

The EIA reported that US simple-cycle natural gas turbines operated at record highs in the summer of 2022. The average monthly capacity factor for simple-cycle, natural gas turbine (SCGT) power plants in the United States has grown annually since 2020. Average capacity factors surpassed 20% for two consecutive summer months in 2022—the first time on record—to meet peak electricity demand, based on data from our Electric Power Monthly. SCGT power plants typically operate year-round but are most active during the summer when electricity demand reaches its peak and varies the most. For the past five summers, SCGT power plants run at a 17% average capacity factor from June through August. The average monthly capacity factor during the rest of the year fell to around 10% as a result of less electricity demand and more consistent wind-powered electricity generation.

Learn more about Phil Flynn by visiting Price Futures Group.