Weekly Energy Market Situation—April 4, 2022

Russia-Ukraine Changes Global Geopolitical Order

Geopolitical alliances under pressure
China moves toward isolationism
Some Chinese call for split with Russia
Natural gas supply to EU in question

Alan Levine—Chairman, Powerhouse

(202) 333-5380

The Matrix

Changes in international relationships have been rapidly shifting in the post-Ukraine period. Just a few weeks have seen Russian economic isolation expand dramatically. Challenges to Russian pre-eminence in energy supply to the European Union are also under pressure.

Alternatives from U.S. sources of both natural gas and liquids have escalated from vague threat to the real thing. Ironically, U.S. availability may now be constrained by insufficient investment. Oils and natural gas, after all, had been written off as fossils of a dying era. Demand from the E.U. and recovery from the Covid-19 Pandemic have added to global requirements.

China has been called the “central geopolitical fact of our time,” by some analysts. China has risen steadily as a supplier of manufactured goods to the world. The country was thought to support Russia in Ukraine. Since Russia has faced an adverse turn on the battlefield, Chinese support now seems less wholehearted.

Agreements were made with Russia to reject NATO growth in Europe and call the expansion of democracy as a “Western plot.” In the marketplace, however, China has not yet actually participated in sanctions imposed by Western powers.

One Chinese observer urges China to move away from Putin because the invasion of Ukraine has revitalized the West. In any case, Chinese actions are having the effect of reducing China’s economic dependence on capitalist nations. Many tariffs, export controls and investment regulations imposed under President Trump remain in place.

Globalization now seems to be on a down-note. Trade may be forming into three blocks. There is an Asian block, centered in China (with energy supplied from Russia.) The United States could form a second block. Europe could be a third.

And while relations between the United States and Europe should be cordial, there are several areas where serious conflict is in play. Another isolationist like Trump could be chaotic for global trade.

These possibilities may yet work out unlike anything we now know. Current plans for export facilities could be influenced by changing directions of trade. And, of course, isolationism could also reduce the overall demand for energy.

Supply/Demand Balances

Supply/demand data in the United States for the week ended March 25, 2022, were released by the Energy Information Administration.

Total commercial petroleum stocks rose 1.8 million barrels during the week ended March 25, 2022.

Commercial crude oil supplies in the United States decreased by 3.4 million barrels from the previous report week to 409.9 million barrels.

Crude oil inventory changes by PAD District:

PADD 1: Plus 0.9 million barrels to 7.9 million barrels

PADD 2: Down 0.6 million barrels to 102.4 million barrels

PADD 3: Down 2.6 million barrels to 225.5 million barrels

PADD 4: Plus 1.3 million barrels to 25.5 million barrels

PADD 5: Down 2.5 million barrels to 49.6 million barrels

Cushing, Oklahoma, inventories fell 1.0 million barrels from the previous report week to 24.2 million barrels.

Domestic crude oil production rose 100,000 barrels per day from the previous report week to 11.7 million barrels daily.

Crude oil imports averaged 6.259 million barrels per day, a daily decrease of 227,000 barrels. Exports decreased by 856,000 barrels daily to 2.988 million barrels per day.

Refineries used 92.1% capacity; 1.0 percentage points higher than the previous report week.

Crude oil inputs to refineries increased 35,000 barrels daily; 15.878 million barrels per day of crude oil run to facilities. Gross inputs, including blending stocks, rose 178,000 barrels daily to 16.458 million barrels.

Total petroleum product inventories rose 5.2 million barrels from the previous report week.

Total product demand decreased 1,250,000 barrels daily to 19.874 million barrels.

Gasoline stocks increased by 0.8 million barrels from the previous report week; total stocks are 238.8 million barrels.

Gasoline demand slipped by 138,000 barrels per day to 8.499 million barrels per day.

Distillate fuel oil stocks increased 1.4 million barrels from the previous report week; distillate stocks are at 113.5 million barrels. EIA reported national distillate demand at 3.804 million barrels per day during the report week, a decrease of 712,000 barrels daily.

Propane stocks increased 0.1 million barrels from the previous report week; propane stocks are at 33.7 million barrels. The report estimated current demand at 1.401 million barrels per day, increasing 61,000 barrels daily from the previous report week.

Natural Gas

Russia’s reliance on gas export revenues seems to be a good argument for minimizing the likelihood of Russian cutoff of supplies. As a practical matter, financial economics are not the only considerations Russia might use in managing its natural gas export trade.

Russia has already cut exports to the EU. They are threatening more. Gazprom sent 25% less natural gas during the fourth quarter of 2021. The threat to halt Nordstream 1 would be serious for Germany’s economy. German has halted certification of Nordstream 2.

According to the EIA:

The net injections into storage totaled 26 Bcf for the week ended March 25, compared with the five-year (2017–2021) average net withdrawals of 23 Bcf and last year’s net injections of 7 Bcf during the same week. Working natural gas stocks totaled 1,415 Bcf, which is 244 Bcf lower than the five-year average and 347 Bcf lower than last year at this time.

The average rate of withdrawals from storage is 7% higher than the five-year average up to this point in the withdrawal season (November through March). If the rate of withdrawals from storage matched the five-year average of 1.1 Bcf/d for the remainder of the withdrawal season, the total inventory would be 1,422 Bcf on March 31, which is 244 Bcf lower than the five-year average of 1,666 Bcf for that time of year.

Was this helpful? We’d like your feedback.
Please respond to [email protected]

Powerhouse Futures & Trading Disclaimer