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Change The Peaking Subject. The Energy Report
By: Phil Flynn | July 11, 2024

When things are not quite going your way, it is probably a good time to try to change the subject. Or the peaking subject anyway. In other words, try to misdirect people away from the fact that things are a shambles and try to change the narrative. Look over there, nothing to see here. Pay no attention to that man behind the curtain.

For example, let’s take BP, that once stood for British Petroleum and then later “Beyond Petroleum” and then back to BP again. The same company that brought you the “Deep Water Horizon” Is now making a daring prediction that oil demand might “peak” next year at a time when the company is struggling and on a downward spiral.

Let’s forget for a minute that all the major reporting agencies like the Energy Information Administration, OPEC, and the International Energy Agency all see oil demand breaking records. At least for the moment the headlines BP might get might be more about their crazy peak demand prediction instead of the company’s dismal performance. Is it any wonder when a company can’t decide what its core business is?

Javier Blass at Bloomberg pointed out that, “Six months since BP appointed a new CEO with the promise of “growing the value”, its market cap has slumped to a 2-year low of ~£75 billion. BP is a shadow of the mighty oil behemoth it once was — and living on borrowed time. He writes that, “Murray Auchincloss had a clear message to his shareholders days after becoming chief executive officer of BP Plc: “I’m focused on growing the value of BP.” Nearly six months since his promotion, however, the promised improvement is nowhere to be seen.

BP’s market value this week fell to a two-year low of roughly £75 billion ($96 billion). Worse, the company is worth today about the same as it was 25 years ago, when oil changed hands at $10 a barrel, rather than today’s price of more than $80 a barrel. BP is a shadow of the mighty oil behemoth it once was. It would be unfair to blame Auchincloss — who celebrates six months on the job next Wednesday — for all the problems. Some predate him.

Yet it’s not just BP that is trying to redirect our attention away from the reality in front of our eyes, but the Biden administration as well. Perhaps one of the most shortsighted and nonsensical pushes from the Biden Administration is the impossible task of trying to electrify our nations electronic fleet. Obviously, this is more evidence that this administration does not follow science.

Yet even though almost half of the people that have been sucked into buying electric cars want to go back to gasoline and based on sales hardly anyone want an electric car, the Biden administration wants to continue to waste billions to push this electronic albatross on the American people. Now its latest action to cover for the fact that they have spent billions of dollars on a few car chargers and in a pathetic attempt to try to win some voters in swing states where he is way behind, he plans to double down on this electric car fantasy.

MarketWatch reported that, “The Biden administration has announced $1.7 billion in grants that aim to help convert closed or at-risk automobile facilities into plants that make electric vehicles or EV parts, with the effort due to aid 11 factories across eight states. The grants — which stem from Democrats’ Inflation Reduction Act of 2022 — are slated to include $500 million for a General Motors GM, +0.58% plant in Michigan, $89 million for a Harley-Davidson HOG, +1.35% factory in Pennsylvania, $78 million for a Blue Bird BLBD, +2.38% school-bus factory in Georgia and $208 million for Volvo VOLV.A, 0.81% truck-manufacturing facilities in Maryland, Pennsylvania and Virginia.

Michigan, Pennsylvania and Georgia are among the seven swing states that look poised to decide the 2024 White House race.

Grant money is also due to go to facilities in Illinois, Indiana and Ohio, with Cummins CMI, +2.01% and Chrysler parent Stellantis STLA, +3.34% among the companies benefiting. The Biden White House said in a statement that the new grants are all subject to negotiations, and that the Department of Energy could rescind the grants as reported by MarketWatch.

Yet we know this electric pipe dream is nothing more than smoke and mirrors. Electric vehicles are not as friendly to the environment as the Biden administration would have you believe.

To have the ability to try to power the grid to charge millions of electric cars and at the same time try to meet the real needs of the economy of the future, which is an artificial intelligence and data centers, makes this task close to impossible. Unless we start building a lot of nuclear power plants and spend billions to increase the reliability of the grid. But we won’t have that cash if the Biden administration keeps wasting in on this electric car obsession. Of course, that won’t stop the Biden administration from spending our money if they think they can win a few votes.

In their attempts to save the planet from greenhouse gases the reality is that the demand for oil and gas is just going higher. Even according to the International Energy Agency (IEA) that once famously said that we could stop investing in fossil fuels is now projecting oil demand growth and not a peak next year.

The IEA, normally one of the most pessimistic and usually the most incorrect on global oil demand today said that, “World oil demand growth slowed to only 710 kb/d in 2Q24, its lowest quarterly increase in over a year. Oil consumption in China, long the engine of global oil demand growth, contracted in both April and May, and is now assessed marginally below year earlier levels in 2Q24. That stands in stark contrast to annual gains of 1.5 mb/d in 2023 and 740 kb/d in 1Q24. Demand for industrial fuels and petrochemical feedstocks was particularly weak.

By contrast, second-quarter delivery data of gasoil and naphtha for OECD economies came in higher than expected, potentially signaling a budding recovery in Europe’s ailing manufacturing sector. While the bounce temporarily pushed quarterly OECD demand growth back into positive territory, non-OECD countries will account for all this year’s global gains. World oil demand growth expectations for 2024 and 2025 are largely unchanged at 970 kb/d and 980 kb/d, respectively. (so, no peak predicted).

No peak for OPEC either. Reuters reported that, “OPEC stuck to its forecast for relatively strong growth in global oil demand in 2024 and next year, saying on Wednesday that resilient economic growth and air travel would support fuel use in the summer months. The Organization of the Petroleum Exporting Countries, in a monthly report, said world oil demand would rise by 2.25 million barrels per day (bpd) in 2024 and by 1.85 million bpd in 2025. Both forecasts were unchanged from last month.

The Energy Information Administration (EIA) also is not predicting an oil demand peak and on Tuesday raised its forecast for the growth of global demand for oil during the current year to 1.10 million barrels per day, and in 2025 by 300 thousand barrels per day to 1.80 million barrels per day.

The EIA also gave oil a bounce as refiners ran wild suggesting more supply draws for crude once refiners recover from Hurricane Beryl.

EIA said that U.S. crude oil refinery inputs averaged 17.1 million barrels per day, which was 317 thousand barrels per day more than the previous week’s average. That means refineries operated at extremely strong 95.4% of their operable capacity last week.

Crude oil inventories did fall last week by 3.4 million barrels and our 4% below the five-year average for this time of year.

Instead of selling oil from the reserve it’s interesting to note that the Biden administration announced a plan to buy 4 million barrels back for the reserve. Of course if prices go up, they’ll probably release some more oil from the reserve again.

The EIA did also report that gasoline inventories fell 2,000,000 barrels from the week before and are 1% below the five-year average. Distillate inventories increased by 4.9 million barrels but are still 8% below the five-year average.

The EIA did see demand stay solid as total products supplied over the last four-week period averaged 20.9 million barrels a day, up by 3.0% from the same period last year.

Gasoline demand that 9.3 million barrels a day last week that’s up 0.4% from the same period of last year and that’s the first time the four-week moving average moved above last year’s levels and we also saw distillate fuel inventories average 3.7 million barrels a day and that was up 4.4% from the same period last year.

So don’t let peak demand fears keep you awake be prepared for a significant tightening of supplies of both oil and products later in the year. Today of course we’re going to have to look at the consumer price index to give us a bit of an idea of where the feds head might be but ultimately use this weakness to put on your winter hedges.

Natural gas prices are still holding in pretty spectacularly even in the aftermath of hurricane Beryl. We think it would be a good idea to put on some long-term strategies for natural gas and get ready for winter because even in the dog days of summer, winter isn’t that far behind.

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