Be Prepared to Pay More at the Pump from June

(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)

In this week’s edition of oil and gas industry hits and misses, Rigzone’s regular market watchers focus on pump prices, lease sales, Covid trends and more. Read on for more detail.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

Hillary Stevenson, Director, Industry Relations at oil and gas data firm Validere: Cushing inventories decreased 185,000 barrels to 26.152 million barrels last week, remaining bounded in a 22-to-30-million-barrel inventory range with price backwardation and strong refinery demand. U.S. refinery utilization was 91 percent last week, six percent higher than year-ago levels. Refineries and fuel blenders are preparing to shift to summer-grade gasoline ahead of the federally mandated May 1 switchover date. Summer grade gasoline has a lower RVP than winter blends, which makes it more environmentally friendly, but also more expensive. End-users should be prepared to pay more at the pump starting June 1.

Phil Kangas, Advisory Leader for Natural Resources & Mining, Grant Thornton LLP: Last week the Biden administration announced it will auction oil and gas leases on federal lands, a move that had been anticipated given pressures to address supply shortages. The move includes 144,000 acres located in nine states up for lease, approximately 80 percent less than the 733,000 acres of land nominated by industry. In addition, the Department of Interior’s Bureau of Land Management is increasing royalty rates on federal leases to 18.75 percent from 12.5 percent. The increase had been anticipated since a report last fall acknowledged the disparity between private and public royalty rates. The announcements were lauded and criticized by both climate activists and oil and gas industry groups, likely a sign that the moves represent good policy.

Rigzone: What were some market surprises?

Stevenson: Henry Hub NYMEX spot prices hit the highest price since 2021 winter storm Uri on April 18. Prices were driven higher by a combination of lower than normal temperatures throughout most of the lower 48 and strengthening international demand. Higher domestic and international demand contributed to U.S. natural gas storage volumes exiting the heating season 16.8 percent lower than the five-year average, according to EIA data.

Kangas: Responding to a March Covid surge, Chinese officials locked down the financial hub Shanghai, affecting a population nearly the size of the State of Texas. Given the scope of these actions, last week both OPEC and the International Energy Agency (IEA) cut their 2022 demand forecasts. The previous month’s IEA short term energy outlook report had warned of a supply shortage, with much of Russia’s production having been taken out of the market based on the international response to the ongoing conflict in Ukraine. The lockdown in China, coupled with substantial production increases from the U.S., OPEC and other non-OPEC producing nations, appears for now to have modulated the market imbalance.

To contact the author, email andreas.exarheas@rigzone.com