Energy Report: Asia Deep Freeze

Bloomberg News reports that “Power generators in Japan such as Tohoku Electric Power Co. recently bought several cargoes of low-sulfur fuel oil for the purpose of direct burning, said traders who asked not to be identified. These supplies can be used in oil-fired power plants, which are typically left in an idled state and utilized only when gas-fed facilities have been maximized. Several other companies including Japanese utilities and trading houses were also seeking cargoes in the spot market this week, they said. LSFO and crude oil used for power generation in Japan need to have an ultra-low sulfur content in order to meet environmental standards.”

This comes as US natural gas production is faltering. The Energy Information Administration (EIA) reports that in its January 2020 Short-Term Energy Outlook (STEO), the U.S. Energy Information Administration (EIA) forecasts that annual U.S. crude oil production will average 11.1 million b/d in 2021, down 0.2 million b/d from 2020 as result of a decline in drilling activity related to low oil prices. A production decline in 2021 would mark the second consecutive year of production declines. Responses to the COVID-19 pandemic led to supply and demand disruptions. EIA expects crude oil production to increase in 2022 by 0.4 million b/d because of increased drilling as prices remain at or near $50 per barrel. This dynamic could and should have natural gas rally despite a normal seasonal downtrend and is also supportive for oil. Our base case is that oil demand will rise faster than production.

The EIA Status Report was supportive as refiners ramped up and gas and diesel demand popped. Still big builds in distillates overshadowed a big improvement in jet fuel demand. The EIA showed that U.S. crude oil refinery inputs averaged 14.7 million barrels per day during the week ending which was 274,000 barrels per day more than the previous week’s average. Refineries operated at 82.0% of their operable capacity last week. Gasoline production decreased last week, averaging 7.5 million barrels per day. Distillate fuel production decreased last week, averaging 4.7 million barrels per day. U.S. crude oil imports averaged 6.2 million barrels per day last week, which increased by 0.9 million barrels per day from the previous week. Over the past four weeks, crude oil imports averaged about 5.6 million barrels per day, 14.9% less than the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 383,000 barrels per day, and distillate fuel imports averaged 346,000 barrels per day.

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