"Falling Inventories Could Stifle U.S. Plans To Help Europe Replace Russian Oil" by Irina Slav at OILPRICE

[Tom Nolan + 2,443]

• Since July 2020, U.S. oil inventories have plummeted by 421 million barrels, which could throw a wrench in America’s plan to help ease Europe’s energy crunch.
• The United States will need to pump a lot more oil if it wants to fill its declining stockpiles.

https://oilprice.com/Energy/Crude-Oil/Falling-Inventories-Could-Stifle-US-Plans-To-Help-Europe-Replace-Russian-Oil.html

Falling Inventories Could Stifle U.S. Plans To Help Europe Replace Russian Oil

By Irina Slav - May 02, 2022, 4:00 PM CDT

• The U.S. oil and gas industry has boosted exports to record highs as Europe races to wean itself off of Russian energy.
• Since July 2020, U.S. oil inventories have plummeted by 421 million barrels, which could throw a wrench in America’s plan to help ease Europe’s energy crunch.
• The United States will need to pump a lot more oil if it wants to fill its declining stockpiles.

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The U.S. energy industry has taken its role of savior of Europe seriously. After boosting LNG exports to a record because of Europe’s thirst for energy, oil exports from the U.S. are now on the rise, as well, but the trend may not be sustainable. Reuters’ John Kemp wrote in a recent column that the United States became a net exporter of crude oil and fuels last month, with the difference between imports and exports at 3 million barrels daily. He also noted, however, that a lot of this oil was coming from inventories that had now fallen to the lowest since 2008.

Since July 2020, Kemp noted, U.S. oil inventories had declined by 421 million barrels. Strategic oil reserves are also low, and fuel inventories are below the average for this time of the year, especially in distillates, which are 30 million barrels below the average.

From an immediate perspective, the fact that the U.S. is stepping in to fill the gap left by sanctioned Russian oil is good news for both U.S exporters and European importers. In the longer term, however, the plan may hit an inventory wall. 

If U.S. exporters are dipping into their reserves to send enough oil to Europe, this means that U.S. oil production is not rising fast enough–a fact the Biden administration has been lamenting for some time. 

Higher exports that do come from inventories may become another issue the administration finds problematic, particularly in the wake of a ban on oil exports that was proposed by Congressional representatives to keep the reins on retail fuel prices before Russia’s invasion of Ukraine. Now, prices at the pump are even higher than they were in December when the legislators proposed the ban.

Clearly, a ban now would go against the administration’s repeatedly stated and demonstrated support for Europe’s energy needs. Yet, the link between rising U.S. oil exports and rising prices for fuels at home is difficult to overlook. The key, of course, is ensuring that production catches up with demand, which will be even more difficult.

The latest monthly production data from the Energy Information Administration (EIA) revealed that oil output in the U.S. dipped in February, before Russia launched its war on Ukraine. Since then, production may have increased to some extent, but not everywhere.

The Wall Street Journal reported last week that oil drillers in the Permian, the biggest contributor to production growth across the nation, were struggling with persistent shortages of equipment, workers, and, perhaps surprisingly, cash.

Related: The Global Energy Shortage Could Be A Boon For Tidal Power

Citing energy executives and analysts, the WSJ’s Colin Eaton said that while the Permian was expected to be the only place in the U.S. where oil production could grow significantly, this growth might not materialize as expected because of continuing supply chain snags.

One reason, according to Eaton, is the damage that the oilfield service industry suffered during the pandemic, which prompted companies to mothball a lot of equipment that is now apparently slow to come back online.  

Another reason, according to the WSJ, is continued skepticism among investors about the oil industry, despite the rallying prices. This is basically clipping the wings of oilfield service providers who lack enough cash to invest in more equipment in response to higher demand for it.

The situation could prove problematic for both the U.S. and Europe. The chances of large public oil companies suddenly changing their minds and doing what politicians want them to do—stop buying back stocks, suspend dividends, and boost production—are slim to nonexistent.

The chances of smaller independent producers suddenly finding the money to drill as much as is necessary to restore balance in international oil markets may be slightly greater, but still too small: investors take time to change course, and then it takes time for oil production to begin growing.

According to the EIA, U.S. oil production will grow by some 8% this year from last, to 12.6 million bpd. That would be up from an estimated 11.9 million bpd as of the week to April 22, so the increase will be less than 1 million bpd. Europe needs more than that and there are few producers as friendly as the U.S. However, the U.S. will need more crude, too, if only to replenish its inventories at some point.

The situation is likely to remain complicated for quite some time. It is no coincidence that Treasury Secretary Janet Yellen warned the European Union last month to tread carefully when it came to an oil embargo on Russia because that would raise prices for everyone. Despite the warning, the EU is soldiering on with its embargo plan, which could be announced as soon as this week.

By Irina Slav for Oilprice.com

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[Tom Nolan + 2,443]

https://oilprice.com/Latest-Energy-News/World-News/US-Fuel-Exports-Are-Draining-Domestic-Diesel-And-Gasoline-Supplies.html

U.S. Fuel Exports Are Draining Domestic Diesel And Gasoline Supplies 

By Michael Kern - May 02, 2022, 5:30 PM CDT

Domestic supplies of gasoline and diesel in the United States are dwindling as record volumes of fuel are being exported from the Gulf Coast, BNN Bloomberg reports.  

Citing Vortexa tracking data, Bloomberg said that up to 2.09 million bpd of gasoline, diesel, and jet fuel shipped out of the Gulf Coast last month. That rate represents the highest volume since 2016 based on known data. 

And it wasn’t destined to help Europe out of its energy crisis. Instead, the report says that most exports went to Latin America, and that is not expected to slow in the near term. 

 

Bloomberg says that countries in South America will burn diesel fuel at a high rate as the winter season sets in, while Mexico is scooping up large volumes of gasoline from the U.S.

This situation is expected to lead to demand destruction overseas, first, resulting in domestic consumers being able to “outcompete” foreign buyers, Bloomberg cited Houston-based Lipow Oil Associates LLC as saying. 

At the same time, it’s diesel that is raking in the profits for American oil refineries focusing on increased output due to wild margins that will only calm down once gasoline output fails to meet domestic summer driving demand, according to Bloomberg. 

Diesel prices, which hit a record $5.16 per gallon last week and have remained on average $1 per gallon higher than gasoline prices, are largely being blamed for the higher prices Americans are paying for consumer goods, which primarily need to be shipped by a trucking industry that relies on diesel. 

On Monday, diesel prices rose further to $5.321 per gallon, according to AAA. 

In a Monday report, Citi noted that the increase in diesel prices had resulted in a decline in the freight industry’s free cash flow from 21% in March to 19% in April. 

By Michael Kern for Oilprice.com

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[footeab@yahoo.com + 2,192]

Lets see, getting oil equipment from China instead of making it..... and last several years had a price war with the Saudi's combined with religious enviro wackos taking over banking cutting off loans... I wonder why there are problems...