So what ever happened to the fuel over-supply crisis?

It seems like it was just a couple of years ago, wasn’t it 2019?? that we had a massive fuel over-supply crisis going on; super-tankers were being leased, filled up and left just parked at sea because there was no place to store the fuel… gas prices here in Cal. nose-dived, getting as low as $2.85 here in Fremont at one point… there were endless discussions, here and elsewhere, about how to reduce production to deal with the problem…

Then the covid apocalypse kicked up, everyone was locked at home, thousands of jobs vanished, normally-gridlocked freeways were suddenly empty, here in the Bay Area and elsewhere across the world… that should have made the issue much worse, with so many thousands, perhaps millions, of cars no longer being driven… but covid overshadowed the other discussions, which perhaps isn’t surprising…

But now, two years later, Bay Area gas prices are creeping back up towards $5; I just paid $4.95/gallon in Fremont to fill the tank, and I’m pretty sure that’s the highest that I’ve ever paid…

So what happened to that over-supply crisis?? What made it vanish???

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Demand

But where did the demand come from, given the issues that I mentioned??

IMO:
Part of the issue is demand. part is loss in efficiency.

Energy prices dropped in spring last year because world manufacturing decreased, as people stayed home due to C19. Everyone in the U.S. wanted to re-roof their houses and put in a patio. All that transport/ production consumed the over-supply of fuel. The over-supply prevented inflation in fuel prices in 2019.

But after 20 months, the over-supply is long since gone, yet C19 is still affecting the energy production economy in different levels. It’s not as efficient as it was. Then, throw in the short term effect of Hurricane Sally on oil production. It didn’t help.

The USA is an amazingly prosperous place. We keep demanding more stuff, NOW. The grease underneath the demand is fuel, but C19 robs the system of efficiency. So friction builds up, and that is the rise in the oil price.

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OPEC has tightened down is one reason.

The other reason is a lack of LNG tankers and some LNG pipeline problems in Europe. This has caused a switch from LNG to oil and coal but there aren’t many bulk ships capable of moving coal cheaply and - thanks to opec - not enough oil (which is why tank rates are low even while the price of oil is high).

Plus there are a lot of smaller factors like Covid slowing down fracking and offshore drilling. China putting restrictions on Australia. The UK Doing away with national LNG reserves. To name a few.

And then of course there is just massive amounts of inflation. Thanks to the federal reserve and all the stimulus check… a dollar just won’t buy what it used to.

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Energy prices dropped in spring last year because world manufacturing decreased, as people stayed
home due to C19. Everyone in the U.S. wanted to re-roof their houses and put in a patio.
All that transport/production consumed the over-supply of fuel.

The problem with this vision, is that the number of vehicles that were then transporting construction goods, were still dwarfed by the tens of thousands of automobiles which were no longer commuting hundreds of miles per day to/from work… our freeways went from solid-red 10 hours per day, to green all day, for well over six months… only since late summer have they begun returning to their ghastly historic levels… and I’m referring to only one ugly valley…

It doesn’t help that O&G exploration budgets have been comparatively low over the last 7 years with the price of oil being below that of what it took to bring in expensive deep water projects. Also investors got tired of Shale producers throwing their capital down the next well instead of returning some of that capital back to the investor. This means that what has been used has not been replaced.

Also Hurricane Ida took out over 600,000 BBLs a day in production that is just now coming back.

Hostile administration to the O&G companies. While I don’t feel that this administrations policies have yet to be felt due to the back log of drilling permits that companies have, this will eventually start to become more of an issue as time goes on. That said what comes out of the Administrations mouth does have an effect on the commodity traders. Also we are now back to the level of BBLs per day consumed world wide and things are still not fully back up and running. Air lines are still not flying as much as the used too, China is rationing power country wide, and Europe is paying through the nose for natural gas for the supposedly colder then expected winter that is coming. This is all factors that are weighing on the energy markets.

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