Out with the old! We need something new.
No more of this, “is the glass half full or half empty?” jargon.
I have chosen a variation on the theme, and will now ask you to ponder if the curtain is going up or is it going down?
Are we about to witness the elevation of crude prices to the $100/bbl level any time soon?
Is now the time?
If so, what is causing it, and what, if anything, could stop it.
If we look at this week’s U.S. inventory report it indicates that supply of crude, gasoline and distillates is 5% below the 5-year average.
The demand side of the coin is the opposite of supply with gasoline, distillates, and jet fuel up on average 19% year over year.
So, the supply/demand equation is out of whack favouring significant short term higher prices for the consumer.
Has the pandemic curtain closed and forced this spike in pent-up demand?
Can the refining fraternity close the gap and increase supply?
Yes, they can; but they are struggling.
If we compare refinery runs today with those of the pre-pandemic period of almost two years ago when the average refined product production was 7% below the 2019 levels.
Now that may not appear to be much ground to make-up, but I believe that refineries are wary that this bright demand picture may just be a flash in the pan that can be doused in a moment if a COVID-19 variant gets into the act.
Why crank up your buying intensity of crude for your refinery system if demand for refined products craters because of a pandemic encore?
The same holds for OPEC who, once again, are in complete control of crude oil markets and pricing.
Why ramp up production and supply to a market that could collapse based on what?
Vaccination proficiency?
Mask, no mask policies?
With every country and seemingly every subset within each country having its own rules and vague guidelines on pandemic protocols how can any supplier of any petroleum product confidently forecast demand when the moving target just won’t stop moving.
Consumer prices get even more difficult to predict when politicians merrily throw themselves into the environmental mosh pit anticipating that we, the taxpayer, will be in the pit with open arms to catch them.
Nothing is more evident of this than the Line 5 debacle, which is now in the final stages of mediation.
If I were the mediator in this sand box dispute, I would pose the following question to the Governor of Michigan, Gretchen Whitmer, “have you lost your mind?” Shutting this line will be economic Russian roulette with a loaded gun, which will maim the economies of Michigan and its northern neighbours in Alberta, Ontario, and Quebec.
What the governor, nor her reluctant mentor, President Biden don’t have a handle on is … this line has to stay open because at this time there is no alternative to hydrocarbons to drive the economy.
Raise the curtain because the show and the line must go on.
– Roger McKnight – B.Sc., Senior Petroleum Analyst
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