How would we feel if Saudi Arabia, in the name of saving the planet, decided to restrict oil exports, asks Phil Flynn of PRICE Futures Group.
Well, the well-funded climate zealots of the high religion of saving the planet have pressured the Biden administration into delaying a decision on US Liquified Natural Gas (LNG) exports that not only make a move toward net zero emissions almost impossible but will inflate global energy prices and force many US natural gas producers out of business. In banning US natural gas exports, the US will lose its global economic advantage by having the cheapest hydrocarbons on the planet and that will inspire more manufacturing to go to other countries where their environmental standards are much lower than here in the US.
The story was given to the New York Times reporter Coral Davenport by one of those unnamed White House sources. The Times wrote that “The Biden administration is pausing a decision on whether to approve what would be the largest natural gas export terminal in the United States, a delay that could stretch past the November election and spell trouble for that project and 16 other proposed terminals, according to three people with knowledge of the matter. The White House is directing the Energy Department to expand its evaluation of the project to consider its impact on climate change, as well as the economy and national security, said these people, who spoke anonymously because they were not authorized to discuss internal deliberations publicly. The Energy Department has never rejected a proposed natural gas project because of its expected environmental impact.”
Well, I can help them with that. The increased use of natural gas has been one of the biggest driving forces in reducing greenhouse gas emissions by replacing coal and oil while lowering costs for food and fertilizer so poor people do not freeze or starve. A short-sighted move by this administration to ban LNG exports would increase the odds of those things happening. The thing is that I believe the Administration already knows that, so the delay is just to appease their green energy donors. If they follow through with the ban many natural gas producers in the US that are already on the bubble more than likely, will have to shut in wells and declare bankruptcy. The US is the Saudi Arabia of natural gas and if we restrict exports, it will have a devastating effect on the poor and the environment.
The Energy Information Administration reported today that US dry natural gas production in the Lower 48 states reached an all-time monthly high of 105.5 billion cubic feet per day (Bcf/d) in December 2023, according to data from S&P Global Commodity Insights. In 2023, Lower 48 dry natural gas production increased by 3.7% (3.6 Bcf/d) from 2022. Dry natural gas production increased by 3.8 Bcf/d in the fourth quarter of 2023 (4Q23) compared with the average for the first three quarters of 2023.
Without US LNG countries like China and India and other countries in the developing world will be forced to use different forms of energy like oil and coal to keep the lights on. And to go back to my original question how would we feel if Saudi Arabia cut off their oil export? It was 50 years ago, during the Arab oil embargo, the United States fell vulnerable when Arab nations cut off our energy supply. It was a wake-up call that we needed to become more energy-independent. Now that we have achieved that goal, it is wrong-headed to step back into the abyss and put our energy security in the hands of others at the same time other countries will be upset at the United States for restricting our exports of a commodity that is going to be extremely valuable to them to allow their countries to feed and employ their people.
The futures market, the global economy, and even the International Energy Agency have been counting on US LNG. Without it, there will be negative consequences no matter what side of the green fence you are on.
Both oil and natural gas are on a tear today. Oil is breaking out as the supply side fear that we have been warning about is starting to become a reality. Oil surged to the highest level in two months driven by hopes that a Chinese stimulus package will keep Chinese oil demand on an upward trajectory and a massive drawdown in the US oil supply.
The Energy Information Administration (EIA) reported in its polar vortex impacted report that US crude inventories fell by more than 9 million barrels last week, to hit the lowest level since October, while total oil stockpiles nationwide had the biggest weekly decline since 2016 according to Bloomberg news. So at 420.7 million barrels, US crude oil inventories are about 5% below the five-year average for this time of year. US oil production got frozen out, dropping from 13.3 million barrels a day to 12.3 million barrels a day. To get back up to the high, it might take a month or more and even longer if we get hit with Polar Vortex 2, which some are predicting could happen.
Total motor gasoline did increase by 4.9 million barrels from last week and is about 1% above the five-year. finished gasoline inventories decreased while blending components inventories increased last week. Can’t run your car on blending components. Distillate fuel inventories decreased by 1.4 million barrels last week and are about 4% below the five-year average for this time of year. Total commercial petroleum inventories decreased by 22.3 million barrels last week.
Looking at the four-week demand picture is looking impressive. Demand averaged 19.5 million barrels a day, up by 3.3% from the same period last year. Gasoline demand averaged 8.1 million barrels a day, up by 3.7% from the same period last year. Distillate fuel demand averaged 3.4 million barrels a day over the past four weeks, down by 6.9% from the same period last year. Jet fuel product demand was up 1.6% compared with the same four-week period last year.
The global market is starting to take more seriously geopolitical risk factors. The Iranian-backed Houthis are claiming this morning that their naval forces directly hit a US military ship. This comes as the Biden administration desperately pleads with Iran that they don’t want a wider war. Yet Iran may. ABC News reports, “Iran’s top diplomat told ABC News Chief Global Affairs Correspondent Martha Raddatz in an exclusive interview Tuesday. “The scope of the war has become wider. This means that the danger of having a wider war in the region has gone up,” Iranian Foreign Minister Hossein Amir-Abdollahian said, blaming the US and Israel for the escalating tensions. “If the US today stops its backing—logistical and weapons, political and media support—of the genocidal war launched by Israel, then I can assure you that [Israeli Prime Minister Benjamin] Netanyahu will not survive for ten minutes,” he asserted. “So the key to solving the problem is in Washington before it is in Tel Aviv.”
The geopolitical risk factors have risen dramatically. Whether it’s the war in Ukraine or the increasing tensions with China and now the belligerent actions by Iran sure seems to suggest that the risk factors for oil more than likely will continue to rise.
Now with the world heading into a global supply deficit and with shipments of oil being delayed, this is one of the main reasons why you need to be hedged in these perilous times.
Learn more about Phil Flynn by visiting Price Futures Group.