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Greetings, Utah Energy United!
Last week we discussed the well-intentioned folly of gas tax holidays and how little an impact they realistically make. The impetus for discussing this comes as the federal government considers waiving the gas tax temporarily while energy prices remain high largely due to the conflict in Iran and the closure of the Strait of Hormuz. It bears mentioning again that we are not opining on the merits of the United States’s actions in Iran; we’re simply analyzing the real world impacts of these actions that are pertinent to our industry.
Here’s where the rubber meets the road in that regard. A recent RBN Energy blog is titled “How High? – Surge in U.S. Crude Exports Ups Estimates of What Gulf Coast Terminals Can Handle” and has the following passage that we found eye-opening.
Estimates vary, but given that some 12 MMb/d of crude oil had been transiting the Strait of Hormuz prior to the Iran conflict, it’s safe to say that more than 800 MMbbl of predominantly light and medium sour oil has failed to exit the Persian Gulf region since hostilities began on February 28 (70-odd days times ~12 MMbbl).
It continues:
The U.S. has, of course, been a primary source due to its abundance of mostly light sweet shale oil and — thanks to the ongoing release of 172 MMbbl from the Strategic Petroleum Reserve (SPR) — substantial volumes of medium sour oil too. (Of the 86 MMbbl the U.S. offered in its first SPR tranche in April and May, a hefty 76 MMbbl was medium sour; the other 10 MMbbl was light sweet.) According to RBN’s weekly Crude Voyager report, USGC terminals sent out more than 5 MMb/d for a record three weeks in a row: more than 5.1 MMb/d the week ended April 17, an all-time high of 5.8 MMb/d the week ended April 24, and nearly 5.7 MMb/d the week ended May 1.
This is compared to the 3.9 MMbbl/d exported from the USGC in February before actions in Iran started. The Wall Street Journal also weighed in on this, and here’s what they had to say:
US energy exports have reached unprecedented levels amid a global energy shortage, with the nation exporting 14.2 million barrels of crude and products daily. However, oil producers are not significantly increasing output, and refineries are operating at full capacity, causing domestic stockpiles to deplete at an accelerated pace. This is keeping domestic energy prices high, with gasoline averaging $4.51 nationally and diesel reaching $7.42 in California.
And finally, here’s OilPrice.com with their own story:
Inventories in the US Strategic Petroleum Reserve (SPR) continue to draw down to alleviate the pressure on prices. For week ending April 24, 7.1 million barrels left the SPR, bringing the new total to 397.9 million barrels. This is 327.6 million barrels shy of maximum capacity. US production fell to 13.585 million bpd for the week ending April 17, down from 13.596 million bpd in the week prior, according to the latest EIA data. This is 125,000 bpd more than this same time last year.
When you put these stories together, it’s easy to wonder how long this is sustainable or where we go from here. The SPR is now just a bit more than half full. Refining capacity is full. Operators are not adding rigs or increasing production. The reasons for this are multiple, including the fact that our business requires long planning lead times in terms of capital investments and permitting, rig availability and acquisition and accommodating for midstream (co-produced gas) and downstream takeaway capacity. No matter how resilient and nimble this industry can be – and it is – a disruption of this size far exceeds its ability to replace the lost product going through the Strait of Hormuz quickly, if fully at all.
As we noted last week, suspending the gasoline tax is a mere drop in the bucket and carries with it consequences for the funding of infrastructure projects. Without a dramatic change in the global transport of crude oil and associated products, things could get worse before they get better. As always, we will keep our eye on the situation.
Thank you for your continued engagement with Utah Energy United. Happy Friday!
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Rikki Hrenko-Browning |
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Thank you for your many efforts! |
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