warm thoughts


Written on: May 18, 2022

EIA inventory released this morning (May 18, 2022) showed a build of 500mbbls at Conway and a draw of 1mmbbls at Mt. Belvieu. Overall a build of only 300mbbls brought the overall U.S. propane inventory level to 44.5mmbbls. This is just 100mbbls above year-ago levels.

The European Union may decide soon to stop purchasing oil from Russia in the coming days. Germany said Monday it will stop buying product from Russia regardless of the EU decision. A decision by the EU to stop buying would not immediately cut off the purchases. For many countries in the EU, it would mean a six-month transition from purchases from Russia. A decision by the EU to purchase elsewhere would likely cut Russian production to 9.6mmbbls daily, the lowest since 2004. Global oil supply remains tight despite the Chinese lockdown due to COVID-19. News from China this week has been more bullish as there are signs the coronavirus pandemic is declining in some of the hardest hit areas. Declaring 15 of 16 districts had eliminated cases, Shanghai is planning to reopen and allow life to return to normal June 1.

The Short-term Energy Outlook (STEO) released May 5 is expecting oil prices to remain in the $110 per barrel area for a while and decline slightly as 2022 progresses and average $97 per barrel in 2023. Of course, the STEO is quick to state there are many moving parts that could cause shifts up or down. For now, they are taking into account the likelihood of steadily increasing production by OPEC as planned prior to the Ukraine War.

The Biden Administration would like to increase drilling at a time of high prices but oil companies remain restricted to some degree by supply chain issues as well as the difficulties everywhere in finding enough personnel. Oil companies are also aware that adding production does not necessarily mean adding profit. ExxonMobil recently announced $8.8 billion in first quarter profits, more than triple the profit from a year ago. With much uncertainty, expect continued volatility to affect the energy sector for the foreseeable future.