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Diesel prices, the lifeblood of industry, have hit a record $5.16 per gallon, trending $1 per gallon higher than gasoline prices, with inventory shortages adding severe pressure and resulting in inflated prices for consumer goods.

“While gasoline prices get much of the attention, diesel, which broadly is the fuel that moves the economy, has quietly surpassed its recent record high as distillate inventories, which include diesel and jet fuel, have plummeted to their lowest level in years,” media quoted Patrick De Haan, head of petroleum analysis at GasBuddy, as saying.

AAA records diesel at $5.18 per gallon as of early Friday.

De Haan warned that if U.S. distillate inventories fall much further–by five million barrels–they will be lower than at any point in the last two decades.

In the first half of March, diesel and gasoline prices began to soar to record highs as a result of Russia’s invasion of Ukraine and subsequent sanctions, coupled with post-pandemic economic recovery that has led to a continual uptick in demand.

Loss of refining capacity will make the diesel crisis the most painful for the U.S. Northeast, and there is no indication of a reprieve in the near future, with GasBuddy predicting that diesel prices will remain high and continue to outpace gasoline prices.

Record-high diesel prices continue to drive up the cost of consumer goods, which all have to be transported by a trucking industry powered by diesel engines.

There is now concern that a ripple effect could see U.S. diesel prices topping $6 per gallon as Russia cuts off natural gas supplies to Poland and Bulgaria. That could potentially force Europe to shift to other fuels, such as diesel, to fill in gaps.

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Why Renewables Can’t Solve Europe’s Energy Crisis

April 6, 2022

Why Renewables Can’t Solve Europe’s Energy Crisis

Europe has been aggressively pursuing a clean energy future and the end of fossil fuels, but Russia’s invasion of Ukraine has highlighted the shortcomings of renewables.
The soaring prices of key metals and the length of time it takes to implement renewable energy projects have meant Europe is turning to fossil fuels to solve its energy crisis.
The EU is planning to replace Russian gas with LNG imports, coal, and even fuel oil, with a relatively small amount of the gas to be replaced by wind and solar.

Germany is preparing for gas rationing. France’s power grid operator is asking consumers to use less electricity. In the UK, protests are breaking out over the latest electricity price hike that plunged millions of households into what one local think tank called fuel stress. Europe has a serious energy problem.

The problem dates back years and points to a persistent complacency on the part of European governments that whatever happens, there will always be gas from Russia. After all, even during the Cold War Russia pumped billions of cubic meters of gas to European countries. Now, things are different, and it’s not just because of the war in Ukraine.

Europe has been enthusiastically trying to reduce its dependence on all fossil fuels, not just Russian gas, for a few years now. The EU recently boasted that in 2022 renewable energy sources accounted for 37.5 percent of gross electricity consumption, with wind and hydro constituting two-thirds of the total renewable energy output. Why, then, one wonders, would Germany have to brace for gas rationing and France ask its citizens to consume less electricity? Now that has a bit to do with the war in Ukraine…

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Desperation And Austerity Hit Global Energy Markets

April 2, 2022

Desperation And Austerity Hit Global Energy Markets

We are starting to see the makings of energy curtailments in Europe – an exceedingly unpopular step that governments would be unlikely to take if there were any other choice, highlighting the acute desperation that exists over oil and gas supplies.

Another signal of this desperation is Biden’s plan to release a massive 180 million barrels of crude oil into the market from the SPR at a rate of more than a million barrels per day. This is a huge figure that will shrink the SPR to lows not seen since the ‘80s (~388 million barrels) when U.S. oil consumption was substantially lower than it is today. This decades-low emergency inventory would come at a time when U.S. production has stagnated with oil companies resisting calls to invest/pump more, and at a time when demand continues to rise.

The UK said on Friday that it would also release more oil from its reserves.

The drastic actions will be interpreted in the medium term as a cause for concern. OPEC+, on the other hand, appears content to stay the course, agreeing on Thursday to stick the agreed-upon production hikes for May. At the same time, Canada continues to raise the price of carbon, thereby raising the price of gas.

Germany’s economy minister has triggered its early warning system for low levels of gas, and has appealed to companies and private consumers to conserve energy. France’s gas distributor is also expected to issue a decree in the next couple of days detailing a plan for possible gas rationing. The Netherlands’ economic ministry said it, too, would soon ask its citizens to use less gas.

Europe and the United States have expended much time and effort trying to scrape together additional fuel supplies and trying to subsidize energy and gasoline for their people…

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Rationing Looms As Diesel Crisis Goes Global

March 28, 2022

Rationing Looms As Diesel Crisis Goes Global

Russian refiners cut processing rates of diesel fuel.
Already tight diesel supply is getting even tighter.
Vitol’s chief executive Hardy: diesel supply shortage could trigger rationing in Europe

Earlier this week, Vitol’s chief Russell Hardy warned that a diesel shortage could trigger fuel rationing in Europe. Now, those warnings are multiplying, with fuel rationing no longer looking like an abstract idea. Europe is risking a blow to its economic growth, Reuters reported on Thursday, citing experts. Diesel is what freight transport uses to deliver goods to consumers, but it is also what industrial transport uses for fuel. With Russian refiners cutting their processing rates in the wake of several waves of Western sanctions, already tight diesel supply is going to get a lot tighter.

“Governments have a very clear understanding that there is a clear link between diesel and GDP, because almost everything that goes into and out of a factory goes using diesel,” the director general of Fuels Europe, part of the European Petroleum Refiners Association, told Reuters this week.

As Vitol’s Russell Hardy noted earlier this week, “Europe imports about half of its diesel from Russia and about half of its diesel from the Middle East. That systemic shortfall of diesel is there.”

Europe is not the only one feeling the diesel pinch, however. Middle distillate stocks are on a decline in the United States, too, Reuters’ John Kemp wrote in his latest column.

Distillate inventories, according to EIA data, have booked weekly declines for 52 of the last 79 weeks, Kemp reported, falling to 112 million barrels last week. The total decline for the last 79 weeks amounts to 67 million barrels. Last week’s inventory level was the lowest since 2014 and 20 percent lower than the five-year average from before the pandemic.

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Why Isn’t U.S. Shale Production Soaring?

February 17, 2022

Why Isn’t U.S. Shale Production Soaring?

With oil prices threatening to break $100 this year, many observers are confused by the lack of a U.S. shale boom.
The major reason that U.S. shale companies are reluctant to boost production at all costs is that they need to keep shareholders happy first and foremost.
Other issues include cost inflation and the shrinking number of sweet spots for them to tap.

A lot of news has been coming lately from the U.S. shale patch. Output in the Permian has broken records for two months in a row. The Energy Information Administration has forecast that the U.S. total could also break a record this year, thanks to higher prices.

But is this news good enough?

The rig count is on the rise; there is no question about it. Output is also on the rise. Yet, according to industry executives, this does not necessarily equate to a return to business as normal. On the contrary, it seems that most of the industry is determined to stick to its financial discipline and keep returning cash to shareholders instead of boosting production.

In an interview with the Financial Times, the chief executive of Devon Energy said that shareholders are, on the whole, still skeptical about production increases, and companies are heeding this sentiment.

“In the back of everyone’s minds is, ‘When is it going to be [production] growth? . . . We have investors saying ‘My gosh, if not now, when?’” Rick Muncrief told the Financial Times. “But for every one saying that, there’s at least one other if not two others waiting to say, ‘Gotcha! We knew that discipline would be shortlived.’ We have learned our lesson,” he added.

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Oil Executives: Higher Energy Prices Are Here To Stay

February 16, 2022

Oil Executives: Higher Energy Prices Are Here To Stay

Big oil executives expect that higher energy prices are here to stay.
Underinvestment in new production is seen as one of the driving factors behind higher energy prices in the mid-term.
Low global inventories and limited spare production capacity are driving crude prices in the short term.

We are just at the beginning of consumers’ energy bill troubles, Big Oil executives have warned as they reported bumper earnings thanks to higher oil and gas prices.

“I’ve no good news to deliver, oil prices will remain high,” TotalEnergies’ chief executive Patrick Pouyanne told media recently in comments on the current situation with energy costs in Europe.

The comment was echoed by the Asian head of commodity major Vitol, Mike Miller, who earlier this month noted low global oil inventories and limited spare production capacity as the reason for his expectations that oil will yet go up.

BP’s Bernard Looney also projected higher energy prices. He called it “volatility” and said oil supply could decline further this year, supporting prices of over $90 per barrel.

“We expect a tight gas market going forward and we expect volatility in power price development,” Equinor’s chief executive, Andres Opedal chimed in at the release of the company’s latest financial results, as quoted by Reuters.

There are two things that all the Big Oil majors quoted share. The first is strong profits resulting from that very same tight supply, coupled with strong demand. The second is the absence of plans to ramp up oil production.

Europe’s Big Oil has been under growing pressure to reduce its emission footprint. Shell even got sued for it and was ordered to slash its emissions. The way to do it: cut oil production.

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Running Out Of Sweet Spots: Shale Growth May Not Materialize

February 8, 2022

Running Out Of Sweet Spots: Shale Growth May Not Materialize

U.S. shale drillers are looking to boost production in the short term
Industry data suggests that well depletion is advancing
Drillers remain upbeat about the short term forecast for shale oil production

During the last shale oil boom when producers were racing to see who could pump the most the fastest, some experts warned that shale oil had a flaw that would come to haunt these producers: wells were quick to start producing but also quick to deplete. Now, industry data suggests that the depletion is advancing. The Wall Street Journal’s Colin Eaton cited reserve inventory data from the shale patch in a recent analysis that pointed to a stable decline that may be irreversible. Eaton also quoted industry executives as making plans for such an irreversible development.

That fossil fuels are finite is no news. It was one of the main arguments in previous renewable energy pushes before emissions became the number-one priority. Technologically, oil and gas resources can be stretched to near infinity as drilling technology advances further and further. Yet this happens at a cost, and it seems that for the time being, the U.S. shale oil industry is not convinced it’s worth paying that cost.

It is this decline in cheaply available oil that is forcing U.S. shale drillers to stay disciplined, the WSJ’s Eaton wrote, despite rising oil prices: West Texas Intermediate is trading at over $90 per barrel for the first time since 2014.

“You just can’t keep growing 15% to 20% a year,” Pioneer Natural Resources Scott Sheffield told Eaton. “You’ll drill up your inventories. Even the good companies.”

Despite this, Chevron and Exxon are planning a substantial boost in the Permian—the most prolific play in the U.S. shale patch and the focus of much industry attention—amid higher prices.

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Russia’s Oil Output Could Peak In 2023

January 30, 2022

Russia’s Oil Output Could Peak In 2023

There are growing doubts as to whether Russia can grow petroleum production to the volumes forecast by Moscow.
The world’s third-largest oil producer’s output will continue growing, peaking at 12.2 million barrels per day by mid-2023, according to Rystad Energy.
A combination of extreme climate, rising depletion rates and U.S. sanctions potentially blocking access to investment is weighing on the development of hydrocarbon projects.

Russia, the world’s third-largest oil producer, has long been an unknown when it comes to the OPEC+ production agreement which caps the petroleum output of participants to support higher prices. It was Moscow’s spat with Saudi Arabia over production quotas in early 2020 which, combined with the emergence of the COVID-19 pandemic, caused crude oil prices to plunge into negative territory for the first time ever. The North American benchmark West Texas Intermediate plunged to minus $37.63 per barrel before recovering, while Brent did not enter negative territory the international benchmark, plunged to an intraday low of less than $15 per barrel. During that time Moscow, Riyadh and other OPEC+ signatories were finally able to agree on production quotas. However, Moscow’s economic ambitions remain a threat to the agreement’s firmness, particularly with Washington threatening further sanctions. With OPEC gradually expanding production quotas set out in the agreement confirmed at the 19th ministerial meeting, there is considerable speculation as to how much global petroleum supply will expand and how that will affect crude oil prices. A key point of conjecture is whether Russia can grow its crude oil output as planned and allowed by its OPEC+ quota, with it speculated that the world’s third-largest oil producer is operating at or near capacity. For December 2021 Russia, according to the Ministry of Energy, pumped an average of 10.903 million barrels of crude oil and gas condensate daily…

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Oil Rally Fueled By OPEC Production Shortfall

January 29, 2022

Oil Rally Fueled By OPEC Production Shortfall

In December, OPEC+ added 253,000 barrels daily to its combined production falling well short of its 400,000-bpd target
OPEC’s underproduction fuels speculation about the cartel’s ability to ramp up production
Morgan Stanley: global spare oil production capacity will shrink from 6.5 million bpd at the moment to just 2 million barrels daily by the middle of the year

That OPEC’s spare oil production capacity was a problem that was only going to get worse with time became clear last year when the first reports began to emerge that the cartel and its partners led by Russia are not adding as much oil to their monthly output as agreed. Now, the gap between commitment and output has deepened, adding fuel to an already strong price rally.

In December, OPEC+ added 253,000 barrels daily to its combined production falling well short of its 400,000-bpd target for yet another month in a growing row. Naturally, this fueled concern about the security of global supply amid forecasts from the International Energy Agency that oil demand is going to exceed pre-pandemic levels later this year.

This latest forecast could be confusing to many who follow the agency’s output. In December, the IEA said that oil demand growth was going to slow down this year. It also forecasted a possible oversupply on the oil market for the current quarter, citing the effect of the Omicron variant on fuel consumption and rising non-OPEC production.

To be fair, the agency noted the oversupply would materialize if several things happen, among them, Saudi Arabia and Russia pumping at record rates as “remaining OPEC+ cuts are fully unwound.” Yet it appears to have greatly underestimated the resilience and strength of demand. No wonder a lot of other forecasters are talking about oil reaching and topping $100 per barrel.

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Turkey Hit By Unprecedented Power Outages As Iran Halts Gas Flows

January 24, 2022

Turkey Hit By Unprecedented Power Outages As Iran Halts Gas Flows

A disruption to natural gas imports from Iran has caused an unprecedented level of power cuts in Turkey.
The power cuts have largely impacted major industrial zones, with some companies forced to halt production as a result.
Iran claims that its natural gas flows have been restored but Turkey has said its supplies and gas pressure remain very low.

Turkey is undergoing massive power cuts to industrial customers this week at an unprecedented level never seen before after the country’s natural gas supplies dipped following a disruption of imports from Iran. Major industrial zones and clusters and major production sites, including those of foreign car manufacturers, are being hit by power outages after Iran said at the end of last week it would halt natural gas exports to Turkey for ten days, due to technical issues.

On Friday, Iran announced that gas flows were restored, but Turkey said supplies were very low and at low pressure.

“The system is being disrupted due to the low amount and pressure. The compressor stations on the Turkey side are ready, operational, and there are no technical issues on the Turkish side,” a Turkish official told Reuters on Friday.

Gas supply from Iran to Turkey has yet to fully resume, which puts major industries under power cuts this week, according to Turkey’s main electricity distribution company TEIAS, cited by Bloomberg.

As of Monday, Turkey’s industrial production will stop completely for at least three days, Daily Sabah reported on Sunday.

Gas accounts for more than half of the country’s electricity generation, and Iran’s halting of flows comes at a time of surging gas imports for Turkey, which have become much more expensive due to the crumbling Turkish currency, the lira.

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Morgan Stanley Jumps On The $100 Oil Bandwagon

January 22, 2022

Morgan Stanley Jumps On The $100 Oil Bandwagon

Morgan Stanley expects oil prices to hit $100 per barrel in the second half of the year, becoming the latest major Wall Street bank to expect triple-digit oil prices by the end of 2022.

The oil market is headed to a “triple deficit” of low inventories, low spare production capacity, and low investment, Morgan Stanley said in a note carried by Reuters.

The bank now expects oil at $100 in the third and fourth quarters of this year, lifting its previous Q3 and Q4 forecasts from $90 and $87.50 a barrel, respectively.

“The key oil products markets (gasoline, jet fuel, and gasoil/diesel) all show strong crack spreads, steep backwardation, and inventories that have fallen to low levels. None of this signals weakness,” Morgan Stanley analysts wrote in the note.

The bank is the latest investment institution to predict that oil is headed to triple-digit territory as soon as this year, amid resilient demand, falling inventories, and declining spare capacity at OPEC+ as the group ramps up production.

Triple-digit oil “is in the works” for the second quarter this year, Francisco Blanch, head of global commodities at Bank of America, told Bloomberg last week. Demand is recovering meaningfully, while OPEC+ supply will start leveling off within the next two months, Blanch said, noting that it will be only Saudi Arabia and the UAE that can produce incremental barrels to add to the market.

Oil prices could hit $100 this year and rise to $105 per barrel in 2023, on the back of a “surprisingly large deficit” due to the milder and potentially briefer impact of Omicron on oil demand, Goldman Sachs said this week…

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Germany To Become Net Power Importer For The First Time Since 2002

January 15, 2022

Germany To Become Net Power Importer For The First Time Since 2002

Europe’s largest economy, Germany, is expected to become a net importer of electricity in 2023 for the first time since 2002 due to retiring coal plants and the nuclear phase-out, the International Energy Agency (IEA) said on Friday.

Germany plans to switch off all its remaining nuclear power generators by the end of 2022, while it will also retire a large portion of its coal-fired capacity fleet between 2022 and 2024.

Recently, the country has said it would aim to phase out coal by 2030 – eight years ahead of earlier plans. The coal exit for Germany could be more difficult than in other European economies, because the country plans to phase out nuclear power generation by the end of this year.

The new coalition’s agreement in Germany includes, for example, the accelerated phase-out of coal—if possible by 2030—and the faster expansion of renewable energy, the IEA said in its Electricity Market Report – January 2022 published today.

Germany’s remaining nuclear capacity, which provided about 12 percent of total generation in 2021, is due to be phased out by the end of 2022. At the same time, some coal capacity is due to be retired according to the approved coal phase-out plans. Coal capacity is set to decline from 35 GW at the end of 2020 to 30 GW in 2022 and less than 26 GW in 2024, the IEA noted.

The timing of Germany’s nuclear phase-out and accelerated coal phase-out coincides with the ongoing energy crisis in Europe, where natural gas and power prices have jumped to record amid insufficient supply of gas and uneven wind power generation in northwest Europe, including in Germany.

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Dutch Plan To Boost Gas Output At Earthquake-Prone Site Sparks Anger

January 10, 2022

Dutch Plan To Boost Gas Output At Earthquake-Prone Site Sparks Anger

Residents in the Groningen area in the Netherlands have voiced their anger at a plan by the Dutch government to potentially double this year production from the Groningen gas field, which has been hit by earthquakes in the past.

The Dutch government said on Thursday that it might need more gas to be pumped at Groningen, once Europe’s biggest gas field, which the Netherlands has pledged to phase out this decade after frequent earthquakes in the past damaged homes in the area.

After years of debates and measures to curb production at the field, the Dutch government decided in 2018 that output at Groningen would be terminated by 2030, with a reduction by two-thirds until 2021-2022 and another cut after that. The authorities had already limited production from the field because of the earthquakes, but they decided in 2018 that the risks and costs were no longer acceptable.

Now the government says that more gas needs to be extracted from the Groningen gas field in 2022 to ensure supply because of long-term export contracts with Germany and a delay in the commissioning of a facility in the Netherlands to treat imported gas for use for Dutch households.

The government is expected to make a final decision by April 1 on how much gas will be extracted from Groningen this year.

“I realize it really is a disappointment for people in the quake region that it has indeed proved necessary to extract more gas,” Dutch Economic Affairs Minister Stef Blok said on Friday, as carried by Associated Press.

The Groningen Earth Movement, a group of residents who have suffered damages from earthquakes, slammed the plan for more gas extraction at the field.

The Ministry of economic affairs and climate policy is playing with the safety of people in Groningen, the movement said, adding that “a government should not and cannot treat the safety of its citizens so lightly.”

Gas Prices In Europe Are Soaring Again Amid New Cold Snap

January 7, 2022

Gas Prices In Europe Are Soaring Again Amid New Cold Snap

European benchmark natural gas prices rose on Wednesday for the third day in a row, as gas deliveries from Russia via Ukraine and Poland continue to be low while another cold snap is headed to Europe.

On Wednesday, natural gas prices at the Dutch TTF hub, the benchmark for European gas, rose by 6 percent by mid-day, following a 30-percent jump on Tuesday.

European gas prices reflect growing concerns that Russian natural gas flows to Europe via Ukraine and Poland have been abnormally low in recent days.

Russian gas supply to Europe via Ukraine dropped earlier this week to the lowest daily volume since January 2020. Daily gas transit flows from Russia westward to Europe via Ukraine on Monday were half the amount Russia had booked for that day, Sergiy Makogon, chief executive officer at Ukraine’s transmission system operator Gas TSO wrote on Facebook on Tuesday, adding that the drop in transit gas volumes was expected to continue. This is the lowest transit volume of gas Russia has sent via Ukraine since January 2020, Makogon said.

Ukraine has accused Russia of deliberately withholding gas supplies to Europe during the winter months to try to force an approval of the controversial Gazprom-led gas pipeline project Nord Stream 2.

At the end of December, Ukraine’s transmission system operator sent a letter to the German Ministry of Economy, in which it says, “we firmly believe that Nord Stream 2 endangers the security of the European Union’s gas supply.”

Nord Stream 2 awaits approval in Germany and then a review from the EU, which will likely push the in-service date of the pipeline well beyond the current winter heating season in Europe.

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Russia Reluctant To Boost Gas Flows As Cold Snap Hits Europe

December 21, 2021

Russia Reluctant To Boost Gas Flows As Cold Snap Hits Europe

Natural gas exports from Russia via the Yamal-Europe pipeline will remain limited at the start of this week as true winter begins and Russia keeps more gas for domestic consumption, with maximum temperatures in Moscow dipping below zero.

Bloomberg reports that after booking limited transit space on the Yamal-Europe pipeline over the weekend, Russia has remained reluctant to boost volumes today, which will likely aggravate the already grave gas supply situation in Europe, which is also facing colder temperatures this week.

According to data from the Regional Booking Platform, bookings for Russian gas flows via the pipeline, which terminates in Germany, stood at 4 percent of its capacity. This compares with an average bookings level of 35 percent of capacity since the start of the month.

Russia has also not booked any capacity on the transit route via Ukraine for today. However, Gazprom has started refilling the gas storage facilities it manages in Europe, although slowly.

Meanwhile, the temperatures in several European countries are expected to fall below zero this week, which will put additional strain on already strained grids, with wind power output much lower than demand requires, and gas in storage depleting fast due to the seasonal peak in demand.

On top of this, France’s EDF had to shut down two nuclear plants after an inspection revealed signs of corrosion on some reactors. These account for a tenth of the country’s electricity output and will add to Europe’s troubles.

The situation is deteriorating fast, and could end in blackouts. Last month, Trafigura’s chief executive Jeremy Weir warned that rolling blackouts were a possibility because of the limited natural gas supplies on the continent.

“We haven’t got enough gas at the moment quite frankly, we’re not storing for the winter period. So hence there’s a real concern that there’s a potential if we have a cold winter that we could have rolling blackouts in Europe,” Weir said.

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