Reduced Fuel Flows

This morning the average price of gasoline in the United States has increased to above $3.82 per gallon, up from $3.54 a month ago. Sustained July high temperatures slowed many Gulf Coast and Midwest refining operations, constraining domestic supply (more). Global energy prices have also been trending modestly higher. Explanations often involve, ” a combination of OPEC+ committing to output reductions, a substantial withdrawal from crude oil inventories, and optimism regarding the potential of a soft landing for the global economy…” (More and more.)

But in recent days the rate at which US gasoline prices are increasing has flattened (or even fallen in some places). In an attempt to explain, Reuters “pointed to the impending early September end of the U.S. summer driving season and lower than expected demand from China.” Last week overall US stocks of gasoline increased after falling each previous week in July (more).

Meanwhile… as I write (on Wednesday morning US east coast time), European LNG front-month future prices are spiking… like a rocket launch (please see chart below). There are many reasons to be nervous about European LNG demand and supply (such as here and here), but according to the Financial Times today’s volatility is evidently tied to “the potential for liquefied natural gas supply disruptions from Australia… TTF, the European benchmark, rose as high as €42 per megawatt hour in Wednesday afternoon trading, 35 per cent higher than the previous day, and hit its highest point since mid-June.”

Bloomberg tagged potential strike action as the underlying issue: “Workers at Chevron Corp. and Woodside Energy Group Ltd. facilities in Australia voted to strike, which has the potential to disrupt LNG exports from the country, tightening the global market for the fuel. The exact timing of the industrial action — if it goes ahead — wasn’t immediately clear. Laborers could stop with seven days’ notice as early as next week depending on progress at a meeting on Thursday…”

It is not unreasonable to be nervous about a second war-time winter with dramatically altered sources and channels of natural gas for Europe (and elsewhere). But EU natural gas inventories are above normal for this time of year (more). US natural gas stocks are well above the five-year average. US LNG export capacity has never been higher (here and here).

Geo-political intention — also-known-as cartel action or war — could still upset current conditions. But, right now, “ordinary” demand for gasoline and natural gas is not out-of-balance with existing supply capacity or flows. If demand remains mostly inside preexisting parameters and distribution of available fossil fuels is not seriously disrupted, prices may roller-coaster in the short-term but both prices and supply should remain coherent with demand through the autumn. After that depends on a whole set of factors beyond any reasonably confident anticipation.


August 10 Update: Overnight (in North America) LNG TTF futures continued to climb. The European benchmark price rose 40 percent before softening as the sun rose over Sydney. As dawn arrives on the US east coast Asian prices continue to rise. Potential strike action could reduce (recent) global LNG flows by 10-11 percent. (Here and here and here.) In this global context, Bloomberg reports on Germany’s natural gas capacity: Stockpiles are “developing positively” and are nearly 90% full, but a cold winter could still put Germany’s energy security at risk. “The danger of gas shortages during cold temperatures remains and will continue to accompany us until winter of 2026/2027 unless further infrastructure measures are taken…”