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The gas crack may break your back, or at least your wallet, as gasoline supplies, are scraping the bottom of the barrel. Not only are supplies about 7% below the five-year average for this time of year but based on current demand levels, are at the tightest level in over a year. This comes as the Energy Information Administration (EIA) reported that total petroleum product demand in the US increased by 1.1M barrel per day, setting a new weekly record high of 32 million barrels a day, which doesn’t fit the slowing demand for oil arguments. Now add to that more refinery issues and you can see why retail gas price jumped to $371.4 a gallon, up 13.4 cents from last week and according to Dan Molinski at the Wall Street Journal, a new high for the year.

Molinski pointed out that gasoline prices were a key factor in pushing the June 2022 overall consumer price index to a 40-year high of 9.1%. He said that high fuel prices forced companies to hike prices on everything from food to appliances and other household goods. Now after the Fed suggested yesterday that they would be data-dependent, they are probably going to be focusing on this coming price spike in gasoline. So, is the Fed going to go back to watching pump prices? They had better.

The gasoline crack hit a new high of $42 as the market is begging refiners to max out production to avoid gasoline shortages. Diesel cracks were forced to keep up with gas cracks hitting 40.49 as diesel supplies, according to the EIA, are 14% below the five-year average and globally well below the 10-year average. This supply squeeze comes as US oil production fell to 12.2 million barrels a day as market distortions created by Biden’s SPR releases and disjointed energy policies discouraged oil investment leading to falling rig counts and a peak in US oil production.

Now with US petroleum supplies so dangerously tight, some may wonder why the US is exporting so much oil and products. Last week US petroleum exports surged to a whopping 10.931 million barrels a day.  The export surge was led by exports of gasoline to an astonishing 6.34 million barrels a day. Don’t tell that to someone who fills up their mini-van today. US crude exports surged to the tune of 4.591 million barrels a day close to a record and we also exported 1.248 million barrels of diesel as well.

And while we have been selling our Strategic Petroleum Reserve, China has been buying for their reserve. We only have 18 days of cover in our SPR but now China has, according to Clyde Russell, added a massive 2.1 million bpd to their crude inventories in June, as it boosted imports of cheap Russian oil. Amena Bakr reported that China’s apparent oil demand edged up in June versus May but remained below the record high set in April. Apparent demand of 15.86 million barrels per day in June was up 1.1% versus May but fell short of the 16.06 million b/d reached in April. Now the US is draining the oil stored at Cushing, Okla., the delivery point for U.S. stocks, falling by 2.6 million barrels from the previous week to 35.7 million barrels, the EIA said in its weekly report.

Yet the Saudis and Russia still want to take control of global oil prices as the US as an oil producer retreats. Saudi Arabia is expected to prolong the oil cut again. A survey shows the Kingdom may decide on extending the 1 million-barrel cut next week as surveyed by Bloomberg. The speculation that Saudi Arabia is going to extend the lollipop production cut until the end of the year and more signs that Russia is acting to rein in production is going to solidify a floor for oil prices.

Oil Price reported that Russia’s crude oil exports by sea continued to slump last week and are now well below the February levels and nearly 1.5 million barrels per day (bpd) lower than the recent peak at the end of April, tanker-tracking data monitored by Bloomberg showed on Tuesday. Russia’s crude shipments plunged by 311,000 bpd to 2.73 million bpd in the week to July 23, as exports out of the Western ports on the Baltic Sea and the Black Sea crashed to 1.17 million bpd, down by 625,000 bpd from the previous week, according to the data reported by Bloomberg’s Julian Lee.

The latest update on the green energy transition from the International Energy Agency (IEA).  The IEA reports that, “Global coal consumption climbed to a new all-time high in 2022 and will stay near that record level this year as strong growth in Asia for both power generation and industrial applications outpaces declines in the United States and Europe, according to the IEA’s latest market update. Coal consumption in 2022 rose by 3.3% to 8.3 billion tonnes, setting a record, according to the IEA’s mid-year Coal Market Update, which was published today. In 2023 and 2024, small declines in coal-fired power generation are likely to be offset by rises in industrial use of coal, the report predicts, although there are wide variations between geographic regions.”

It might be hard to charge your electric car in California. Bloomberg reports that, “California’s main power grid operator issued an emergency watch notice for Tuesday evening as residents cranked up air conditioning during a heat wave. Energy use could outstrip available supplies and result in possible electricity shortages, the California Independent System Operator warned in a statement posted to its website. The grid operator was encouraging market participants to offer additional grid stability support services, while utilities may ask customers to reduce demand, it said. 

Some of the upside risks that we’ve been warning about for months are starting to come to fruition. With gasoline and diesel cracks near record highs and the possibility that we’re going to be seeing supply deficits in the coming weeks, is really going to keep upward pressure on prices. Be careful. 

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