OGV Energy's US Energy Review – December 2022

US oil and gas producers and refiners reported strong third-quarter results, drawing renewed criticism from President Joe Biden, while inventories of distillate fuel in America are at their lowest in decades just as the winter heating season begins, and US oil supply growth could be lower than earlier estimates.     

US President Criticises Record Oil & Gas Earnings

President Biden said at the end of October that oil and gas supermajors – which had made $100 billion in profits in the last six months – were “profiteering” from the Russian invasion in Ukraine and not investing enough to bring down petrol prices in the United States. 

“I think they have a responsibility to act in the interest of their consumers, their community, and their country; to invest in America by increasing production and refining capacity. Because they don’t want to do that. They have the opportunity to do that — lowering prices for consumers at the pump,” President Biden said.

“You know, if they don’t, they’re going to pay a higher tax on their excess profits and face other restrictions. My team will work with Congress to look at these options that are available to us and others. It’s time for these companies to stop war profiteering, meet their responsibilities to this country, and give the American people a break and still do very well.”

President Biden’s comments came a week before the US midterm elections, in which voters were widely expected to be influenced by the high petrol and energy prices and the state of the economy.

Responding to President Biden’s remarks, the American Petroleum Institute (API) released a statement from President and CEO Mike Sommers, who said, “Rather than taking credit for price declines and shifting blame for price increases, the Biden administration should get serious about addressing the supply and demand imbalance that has caused higher gas prices and created long-term energy challenges.”

“Today, the President proposed to raise taxes on the U.S. natural gas and oil industry that is competing globally to produce the fuels Americans need every single day. Oil companies do not set prices—global commodities markets do. Increasing taxes on American energy discourages investment in new production, which is the exact opposite of what is needed,” Sommers added.

“American families and businesses are looking to lawmakers for solutions, not campaign rhetoric,” the API’s president and CEO noted.

US Distillate Stocks at Record Lows

US inventories of diesel and heating oil have been below averages this year, and now sit at their lowest level for this time of the year since 1951, just as the heating season started and the EU embargo on Russian oil product imports is set to come into force in February 2023. 

The historically low stocks have stoked a much steeper increase in diesel prices than the smaller rises in petrol and crude oil prices this year. Since diesel is the primary fuel of the economy and long-haul transportation, the high diesel prices continue to fuel inflation.

In a November overview of the diesel market in the United States, the US Energy Information Administration (EIA) said that strong demand for diesel had led to high prices and tight inventories going into winter. In October 2022, the United States had just 25 days of supply of distillate fuels, the fewest since 2008, according to the administration. To compare, the stocks of diesel in the United States averaged 34 days between 2017 and 2021.

Reduced refining capacity in the United States and globally since 2020 is one of the main reasons for low distillate inventories in the United States, the EIA said. 

Distillate fuel consumption this year through August remained below pre-pandemic levels but was higher than in 2020. The US Northeast—the combined New England and mid-Atlantic regions—has had even tighter inventories than the US average. Lower inventories have contributed to rising prices in the region.  

Moreover, households in the US Northeast who rely on heating oil for space heating will see 27% higher bills this winter compared to last winter, the EIA said in its Winter Fuels Outlook in October.

“Our forecast for heating oil margins this winter reflects price pressures that have currently been affecting the U.S. distillate market, including low inventories, low imports, and limited refining capacity,” the EIA said.

Demand for distillates, mainly diesel fuel and heating oil, increased by 12.0% month on month in October despite indications of weaker freight shipping by truck, API’s chief economist Dean Foreman wrote in API’s latest Monthly Statistical Report in November. 

Overall, US petroleum demand of 20.3 million barrels per day (bpd) in October was marked by the second highest demand for “other oils” (that is, naphtha, gasoil, propane/propylene) on record since 1965, as well as a 12% monthly increase for distillates. Refining throughput and capacity utilization rates rose to their highest levels for the month of October since 2018, per API’s estimates. 

US petroleum demand was solid at 20.3 million bpd in October and also 20.3 million bpd on average for the first 10 months of 2022. The year-to-date average was within 1.3% of its highest level over the past five years.

US petroleum net exports rose to 2.1 million bpd, the highest for any month on record since 1947, according to API.

“Overall, the October data should demonstrate to energy policymakers that oil, natural gas and natural gas liquids have remained essential to U.S. economic activity and consumer health – as winter begins, OPEC has implemented its announced November production cuts and the Russia G7 price cap plus EU sanctions risk disruptions to global oil markets,” API’s Foreman wrote.

US Oil Production Growth Slows Down, Gas Output Surprises to the Upside 

Constraints in the oilfield services sector are set to slow US oil production growth, Enverus Intelligence Research (EIR) said in a report in the middle of November. EIR cut its forecast for US production growth, due to the headwinds created by oilfield services limitations, the risk of recession, and reduced performance from wells drilled recently in the Permian Basin.

EIR slashed its Lower 48 oil production forecast, and now expects growth of around 450,000 bpd end-to-end for 2022 and 560,000 bpd growth for 2023.  

US natural gas supply growth has surprised on the upside, touching 100 Bcf/d sooner than anticipated, EIR said, anticipating now strong growth for 2022 at around 3.4 Bcf/d.

“In U.S. gas markets, mild weather through the first half of November has helped storage build, lifting inventories to approximately 3.6 Tcf before winter withdrawals start. On average for winter, we expect a storage deficit to the five-year average of 170 Bcf with prices at $5.30/MMBtu,” said Jonathan Snyder, report author and a vice president at EIR.

The research firm expects the gas inventory deficit to flip to a surplus by the early summer of 2023, further reducing prices toward $3.50/MMBtu until 2026.

Read the latest issue of the OGV Energy magazine HERE