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Ukraine operator to suspend Russian gas flow via Sokhranivka entry point

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© Reuters. Gas pipelines are pictured at the Atamanskaya compressor station, facility of Gazprom’s Power Of Siberia project outside the far eastern town of Svobodny, in Amur region, Russia November 29, 2019. REUTERS/Maxim Shemetov.

By Susanna Twidale

LONDON (Reuters) -Ukraine’s gas system operator GTSOU said on Tuesday it would declare force majeure on the transportation of Russian gas through the Sokhranivka entry point, with flows stopping on May 11.

Ukraine has continued to be a major transit route for Russian gas to Europe even after Russia’s invasion of the country on Feb. 24.

GTSOU said it could not carry out operations at the Novopskov gas compressor station at the site due to “the interference of the occupying forces in technical processes.”

The Novopskov compressor station in the Luhansk region of eastern Ukraine has been occupied by Russian forces and separatist fighters since soon after the invasion began.

It is the first compressor in the Ukraine gas transit system in the Luhansk region, the transit route for around 32.6 million cubic metres of gas a day, or a third of the Russian gas going to Europe through Ukraine GTSOU said.

“To fulfill its transit obligations to European partners in full and following the terms of the agreement, it is possible to temporarily transfer unavailable capacity from the ‘Sokhranivka’ physical interconnection point to the ‘Sudzha’ physical interconnection point located in the territory controlled by Ukraine,” GTSOU said in a statement.

Commodities

U.S. Strategic Petroleum Reserve drops to lowest level since 1987

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© Reuters. FILE PHOTO: A maze of crude oil pipes and valves is pictured during a tour by the Department of Energy at the Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016. REUTERS/Richard Carson

HOUSTON (Reuters) – The amount of crude oil in the U.S. Strategic Petroleum Reserve (SPR) dropped by 5 million barrels in the week to May 13, data from the U.S. Department of Energy showed.

Stockpiles in the Strategic Petroleum Reserve fell to 538 million barrels, the lowest since 1987.

About 3.9 million barrels of sour crude was released into the market, while about 1.1 million barrels of sweet crude was issued, according to the data.

President Joe Biden in March announced the largest release ever from the U.S. emergency oil reserve at 1 million barrels per day (bpd) of crude oil for six months from the reserve.

The 180 million-barrel release is equivalent to about two days of global demand, and was the third time Washington had tapped the SPR in the six months prior.

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Commodities

Oil Climbs Another 3% as OPEC Paws Away Any Meaningful Output Hikes

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© Reuters.

By Barani Krishnan

Investing.com — Shut out the noise, stick to the script and let consumers’ problems be consumers’ problems, not ours. OPEC+’s stance worked well in pushing crude prices up for a fourth day in a row, adding some 3% to Monday’s session after an initial tumble in the Asian trading hours as market participants reacted to poor economic data out of China, the world’s largest importer of oil.

London-traded Brent settled at $114.24, up $2.9, or 2.4%. It sank to $109 earlier in the day.

New York-traded WTI settled at $114.20, up $3.71, or 3.4%. Earlier in the session, WTI fell to as low as $106.28.

The turnaround in crude prices came after Saudi Arabia’s Energy Minister Abdulaziz bin Salman said a dearth of refining capacity in the United States and elsewhere meant that gasoline and other oil products would remain expensive even if exporters pumped more crude. 

US fuel prices have hit record highs since last week, with gasoline at above $4.50 and diesel at around $6 at some pumps. Aside from a deficit in refining capacity, demand for fuels anticipated ahead of the peak summer season for travel is driving energy prices to hitherto unseen levels. 

Abdulaziz’s remarks form a now familiar OPEC+ refrain that there are “physical impediments that no producer can solve.” 

The 23-state OPEC+, which comprises the original 13 nations led by the Riyadh-led Organization of the Petroleum Exporting Countries with another 10 countries steered by Russia, have stuck to monthly increases of just above 430,000 barrels per day. That falls clearly short of demand that is at least 3 million barrels higher, as a direct consequence of the West’s sanctions on Russia that have de-legitimized an equal number of barrels that used to be on the market.

The United States is experiencing a severe squeeze in the supply of gasoline, and particularly diesel, from the closure and downsizing of several refineries during the Covid-19 pandemic. Refineries that have stayed in the business are now providing only what they can — or, more accurately, what they desire — without putting any of the money into expanding existing capacity or acquiring the idled plants that can be reopened to provide some measurable relief to consumers. One motivation for the refineries to do this: record profits from the current situation that may be diluted in an expansion. The other is the long turn-around time for any new refinery to deliver a profit.

Bloomberg estimates that more than 1.0 million barrels per day of U.S. oil refining capacity — or about 5% overall — has shut since the Covid-19 outbreak initially decimated demand for oil in 2020. Outside of the United States, capacity has shrunk by 2.13 million additional barrels a day, energy consultancy Turner, Mason & Co says. The bottom line: With no expansion plans on the horizon, the squeeze is only going to worsen.

“There is no refining capacity commensurate with the current demand and the expectation of the demand in the summer,” Abdulaziz reiterated on Monday in comments carried by Bloomberg from an energy conference in Bahrain.

His remarks were echoed by Bahrain’s Oil Minister Sheikh Mohammed Bin Khalifa Bin Ahmed. 

“There’s no new capacity coming,” Sheikh Mohammed said at the same event. “Even if you produce more crude, there isn’t demand for it, there aren’t any more refineries.”

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Analysis-White House weighs inflation vs. farmers in new biofuel mandates

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2/2

© Reuters. FILE PHOTO: An ethanol plant with its giant corn silos next to a cornfield in Windsor, Colorado July 7, 2006./File Photo

2/2

By Jarrett Renshaw and Stephanie Kelly

(Reuters) – The White House is expected to announce in coming weeks the amount of biofuels like corn-based ethanol that U.S. refiners must blend into their fuel this year, a decision that will force it to weigh taming consumer inflation against supporting the nation’s farmers.

How the administration balances the competing priorities could play a role in November’s midterm elections, as high consumer prices pose a political threat to President Joe Biden’s Democratic party and Farm Belt voters remain a crucial constituency.

The White House National Economic Council, led by Brian Deese, is pouring over numbers to gauge whether lowering blending mandates for ethanol and renewable diesel will help blunt rising food and fuel prices, according to two sources familiar with the process.

Cutting mandates for ethanol and advanced biofuels like biodiesel could theoretically cut food costs by reducing demand for corn, soy and other staple crops that have become more scarce since Russia’s invasion of Ukraine. Trimming the mandates could also potentially take pressure off pump prices by reducing blending compliance costs for some oil refiners.

But doing so would anger farmers and the biofuels industry that insist the annual blending mandates are critical to supporting their livelihoods.

White House officials are meeting with lobbying groups representing oil and consumer goods giants, including the Food Manufacturing Coalition, American Bakers Association, American Petroleum Institute and Renewable Fuels Association, as they weigh the possible changes.

“I have never in the history of the program seen such a confluence of issues potentially impacting the outcome. If there was a perfect storm, this is it,” said Michael McAdams, president of the Advanced Biofuels Association.

The Environmental Protection Agency sent its proposal on biofuel volume mandates for the years 2020 through 2022 to the White House for final review in late April. The proposal would retroactively lower the mandate for 2020 and 2021 but to boost it back up again for 2022, three sources told Reuters. The EPA declined to comment.

ETHANOL AND HIGH GAS PRICES

The U.S. Renewable Fuel Standard, enacted in 2005, requires refiners to blend biofuels like ethanol into the fuel pool or buy credits from refiners who do. The program has been an economic boon for states like Iowa and Nebraska, but smaller refiners who have not invested in blending facilities say the cost of buying credits threatens their plants.

U.S. credits tied to ethanol are trading at over $1.60 each, the highest since August, while biomass-based credits are over $1.80 each, near the highest since June. The ethanol credits, which traded as low as 8 cents apiece in early 2020, have remained at historically higher levels since last year.

Economists say some portion of the cost of the credits is passed on to consumers, resulting in higher pump prices. Some refiners and their union backers are encouraging the White House to lower the ethanol mandate below 15 billion gallons in 2022 to drive the credit costs down.

Without the cost of compliance credits, however, adding ethanol to the nation’s fuel pool can actually reduce pump prices, by expanding the overall volume of available fuel using a substance cheaper than straight gasoline.

The White House earlier this year tapped into that dynamic by announcing it was lifting a ban on summer sales of higher ethanol blends of gasoline, called E15.

FOOD VS FUEL

Corn-based ethanol accounts for the overwhelming majority of blending under the RFS. In 2022, the EPA proposal would require refiners to blend 15 billion gallons of ethanol and 5.77 billion gallons of advanced biofuels.

In recent years, while ethanol demand has remained stagnant, demand for advanced biofuels like renewable diesel and sustainable aviation fuel has surged as states like California and Oregon adopt their own renewable fuel mandates. That has swollen demand for oilseeds like soybeans and canola that serve as biofuel feedstocks and compete with other food crops for finite planting area.

The edible oils are used in everything from cakes, chocolate and frying fats to cosmetics, soap and cleaning products.

Robb MacKie, president of the American Bakers Association, which includes companies like Kroger (NYSE:KR) Co and Tasty Baking Company, first raised concerns about supply and prices for these products with the EPA last year, asking that blending levels be rolled back to 2020 levels.

Then Russia’s invasion of Ukraine in February made the problem worse.

Russia and Ukraine account for nearly a third of global wheat and barley production, and two-thirds of the world’s exports of sunflower oil used for cooking. Also, Indonesia recently banned exports of palm oil, cutting off more than half of the global supply.

Soybean futures have risen over 20% so far this year to more than $16 per bushel, while corn futures have gained about 30% to over $7.90 a bushel.

“In light of what we are experiencing, the alarm bells are ringing,” MacKie said.

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