Am I Over Thinking?

 

Just when I think I have figured something out... it goes "poof"!

A bit over a week ago, the price of natural gas in Europe and U.K. went skyward, Mostly because Gazprom was shutting down Nord Stream 1 for repairs and might not reopen. 

On the 26th of August, Norway's Gassco, stated they will reduce capacity for planned and unplanned maintenance at 13 fields and processing plants throughout September.

This past week saw prices drop 30%. Reasons given...

1. It was thought Nord Stream 1 would reopen on schedule.
2. Germany was a month ahead of meeting its storage capacity targets.
3. It was suggested that certain large industrial users of natural gas could not afford the high price and were shutting down.
4. It was further suggested, these companies were selling some of that much cheaper natural gas "forward contracted" a couple of years back... for a healthy profit margin going forward. 

Then late Friday, Gazprom said no on reopening on schedule, just like everyone originally thought. 

So #1 was wrong, #2 is probably right. How can #2 continue on pace to achieve all its targets, if Nord Stream 1 remains shuttered and Norway starts their planned and unplanned maintenance? Unless there is much to #3 and #4.

Let's face it... if you were a company that heavily uses natural gas; you would want to plan several years ahead and lock in prices. Say it is mid 2019 and you lock in a 10€ per MWh and you have that currently locked into your business model, but your business model suggests a dramatic slowdown in your sales... you could look back at that 10€ per MWh and see the market is currently paying 20 times that rate. 

Call me quite cynical, but when such a company screams they cannot afford such high natural gas prices and then shut down, I wonder what the real motivation might be. 

This becomes especially true, when considering some of these countries are multi-national conglomerates.

Am I over thinking?

Review of EIA Weekly Report for August 10th 2022

The EIA released the latest weekly report, and I am still not seeing demand destruction. Yes, from this time last year, but it is hard to make a call on demand destruction, when the days supply of gasoline falls from 26.2 last week, to 24.9 for this week's report. 

Yes, Gasoline Inventories fell nearly 5.0M BBLS from last week's report. Might the imports/exports of gasoline have something to do with that. We did export 3.2M BBLS more than import... last week. I am not sure where all those numbers citing demand destruction are coming from. 

The market for gasoline has shot up 11¢, as of this writing. Not the only one... NOT seeing demand destruction. 

Yes, I could be looking at all this wrong, but it would take some proof, that I haven't seen

On to the Natural Gas stuff...

I have about give up on trying to understand the European (including U.K.) situation. I still track it and read about it, but figure there is enough to worry about on this side of the Atlantic. Although... whether or not we in the U.S. are in a recession or about to be, it is becoming very clear that the other side of the Atlantic will almost definitely be. Does it aggravate our situation?

While the U.S. natural gas prices are back on the rise, I would expect a bit of a jump going forward, depending on whether the Freeport facility gets up to full run. It has stated early October start-up. Plus, Calcasieu Pass has been granted approval for blocks 5 and 6, whatever that means.

Meanwhile, here's hoping for a mild winter...

We are staying ahead of the curve, so that is good. 

Review of EIA Weekly Report for August 3rd 2022

I am still looking for the demand destruction in gasoline... and just not seeing it. There was likely a pull back in June and early July, but demand seems to be on a plateau. Crude Inventory is up +4.4M BBLs, distillates down -2.4M BBLs and gasoline up slightly at 163K barrels.

The U.S. exported 3.8M BBLs more Crude and Petroleum products, than imported, with the tally from March 1st at 151.1M BBLs. Gasoline exports outweighed imports by 1.6M BBLs last week and that tally now stands at 19.9M BBLs since March 1st.

At this point in time, the futures market suggests pump prices will continue to fall and should go below the $4 mark, by mid August and then maybe another 15¢ or so by end of month. A word of caution as we are heading into peak hurricane season. Let's keep our fingers crossed. 

The natural gas futures aren't signaling any big changes...

I have somewhat delved into U.K. futures and the current price is suggestive of a 49% rise in bill to £2,972 annual. I have been reading about another potential rise for 1st of the year and it would tack on another £600 annual, based on the December futures price. I don't think I have any publicly appropriate adjectives for any of those rises. 

Nearer to home, the big question is our natural gas.

A year ago, we were at the top of the 5 year maximum and now we are near the minimum. Not sure how to feel about that. I do not directly use natural gas, but I do use electric generated by natural gas, products that were made in factories that use natural gas, etc. 

I'll just have to monitor my utility bills, my grocery bills, other purchases, etc. I think there is a word for when things go up in price... is it transitory? No wait it is inflation! Crap, I thought I left that in the rear view mirror... some 40 years ago. 

Allow Me To Butt In, With a Rebuttal of Sorts

Here is the premise...

Some politician said it is the patriotic duty of gasoline suppliers to reduce costs and some rich dude says the politician is misdirecting or unaware of how the market works. This happened to flow right into some of my social media accounts.

This prompted one poster to reply with this. I won't do a screen capture, as it might be some violation of something. You can open the link. Crude Oil (WTI) is up 40% and Gasoline is up 60%, both from 1 year ago. It does seem to support the theory, that gasoline prices are out of line.

The problem being WTI and Brent are Global Benchmarks and Gasoline is basically a U.S. market... benchmark. So why is this? (click to enlarge)

This seems to have started diverging last fall. Here is the Price history of WTI Crude and Gasoline Futures. Which seems to be the product of exporting more gasoline than importing. For that information, here is the export history and the import history. (Weekly, in thousand of barrels).

IF gasoline futures had stayed in line with WTI, the futures would be around $3.44 and we (U.S.) would be averaging around $4.29 at the pump... nationally, and we would still be griping. 😭

I made this easy(?) to read graph on the difference...

Yes, we have upped the exports of gasoline and thereby forced the gasoline futures to battle with global pricing structures... just to keep gasoline in the USA. 

I didn't check on every country, as various countries are subsidizing, but I do keep tabs on the U.K. Even when factoring in the U.K. using a bit higher octane rating, the U.S. gasoline is a bit cheaper... when backing out taxes. This is not intended to explain away U.S. prices, but rather the nature of global pricing structures.

As to the patriotic theme, that is clearly intended for an American audience that sees a familiar name and thinks of it as an AMERICAN brand. In fact, they are Multi-National (Global) Enterprises. So they likely are being patriotic... but to what nationality?

Our patriotic politicians could reinstate the crude oil export ban, that was overturned in late 2015, and it would bring down the WTI price, but does not help the gasoline side of the equation, as there were no limits on gasoline exports. 

Has releasing 1 million barrels a day from the SPR done anything? Why yes, it has kept the WTI from going through the roof and gasoline following a similar track. 

Speaking of the SPR, with the draw of 1 million barrels per day to end at end of October... the U.S. is already planning to replenish those barrels.

Not sure what that will do to crude or gasoline futures, but there will be somebody, somewhere, ready to complain and blame someone. That someone will always be of the opposite political persuasion. 

It is sad to watch... but somehow, very entertaining as well. 

As for the Crude oil and petroleum products, much the same trend, for those interested...

Bored on a Saturday Night

There is nothing on television worth watching, and the news is to be avoided. I have completed all my chores for the week and looking for something to do.

So, allow me to jabber about stuff, I know very little about... and prove to you how little I know.

As the EIA seems to be having difficulty with this past week’s reports… I am shooting in the dark, even more so than usual.

The futures market indicates UK natural gas prices will likely double from current, while the Dutch seems to believe in consistency, going into January of 2023. It strikes me odd, as the Dutch and UK futures had remained rather consistent until about a month ago.

I cannot quite understand why, but last fall, the topic of storage was in the news, and I do seem to recall the U.K. had divested itself of most of their NG storage capacity. . It likely was due to long range planning away from fossil fuels.

That's okay, as it is their business. My concern is the prices in the U.S. While prices have doubled and then some, the futures market seems to hold steady where we currently are. Naturally, the doubling of price of Natural Gas on the market does not translate to doubling of price to the end user, but $3.50+ per MBTU will. 

That adds up to about $20 a month more for the average American Household and it is important to remember... only about half of American households use Natural Gas, so about $40 more per month. BUT, most of those households rely disproportionately on Natural Gas in the colder months. 

Likely most Americans have adjusted. Nearly all of us use Electricity and about 40% of that comes from Natural Gas.

The problem will be when the Freeport company is back up to 100%. The problem with the chart above, is it omits the runup to over $9.30 per MBTU just prior to the fire at Freeport. Freeport accounts for about 17% of LNG exports. That fire caused a major disruption for exports, which reduced the draw on our own inventory. 

Freeport states they should be partially up and running in 90 days and at full capacity by end of the year. It is not a stretch to think U.S. natural gas prices will near the $10 per MBTU by then. 

Just double the above numbers and you can see the problem.

On the good news, the gasoline futures have slid 44¢ from their peak on June 6th. Gasoline at the pump always rockets upward, but fall like a feather. That price should continue to fall another 17¢, unless something else happens. If you are wondering about a discrepancy, rest assured the gasoline was on pace to hit $5.20 at the pump and then the bottom suddenly fell out. Something about bad economic news.

There was a bit of concern about some Canadian Model's itinerary, but the Canadian Model appears to have changed her mind. 

That wraps it for me, as this is started to be boring. Oh wait, maybe there is something on the streaming services, that I would be interested in, AND haven't seen a dozen times.😀

The Good Ole Days Are Back!!?

 

Image by confused_me from Pixabay

Not really, but the PCE headline of highest inflation in 30 years, conjured back to a time 30 years ago when the PCE was the lowest it had been in awhile. It's all about the point of view or context or whatever.

A rational point of view...

Justice Kavanaugh tested positive for covid and is asymptomatic. Which brings me to why I am posting here. My old haunts have become so hateful and divided, some are wishing him the most horrible things. There are clearly some things far worse than Covid, imo.

United Kingdom...

The U.K is still experiencing petrol shortages and is still saying there is plenty of Petrol and to stop hoarding and purchase normally. Never mind the public had been purchasing normally, when the shortages began and nothing has really been changed.

Glad I live in a country where the leaders are always on the lookout for their citizens' best interest. ROFLMAO, c'mon... everyone could use a good laugh.

Debt Ceiling...

I read where Janet Yellen is proposing elimination of the "debt ceiling". May as well, as it always gets raised after much haggling back and forth. I get the idea of limiting increased debt, but each party drags their feet when the other is in power, etc. All in all, the debt just keeps on rapidly rising.

Problems with gas...

I see where China has ordered their energy companies to get supplies at any cost. At some point that has to be passed on to the customers, or the government (banks, etc) is stepping in to assist at any cost. It may not be passed on to the Chinese public, but likely to exporters. I wonder who that would be? Look out!

In addition, I read the price of natural gas is akin to $190 a barrel of oil, before this mad dash by China. Those kind of numbers would put a serious crimp in the economy, imo. How can coal prices be nearly double anything over the past 10 years, if we are moving away from coal? Oh wait... the Global consumption of Coal is not slated to start dropping until around 2030. So much for those Climate Change targets.

I owe, I owe, so off to work I go...

The U.S. International Net Position was released by the Federal Reserve. It ain't good...

It has rapidly deteriorated since last quarter. This can't end well. Of course I won't end well either, it is just which doesn't end well first. WHEW!!!

Not a lot else comes to mind and it is Friday afternoon. Back in to good old days meant the weekend was nigh. It's just another day for an old retired guy. BUT I was 30 years younger, 30 years ago and that is better than where I am now. Ugh!