Released May 27, 2022 | SUGAR LAND
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Researched by Industrial Info Resources (Sugar Land, Texas)--At a Thursday market briefing and question and answer session, executives with the American Petroleum Institute (API) (Washington, D.C.) and Energy Marketers of America (EMA) (Arlington, Virginia) had lots of concerns but few solutions for the high gasoline and diesel prices being seen at pumps throughout the U.S. During the Q&A session, when asked, "What can you offer the American public about when prices may come down?" both Frank Macchiarola, API's senior vice president of policy, economics and regulatory affairs, and Rob Underwood, president of EMA, didn't have many answers.
Macchiarola began the session by explaining what has led up to current situation, as "supplies dropped during the pandemic and had a taken a longer period of time to return," noting that the situation had been exacerbated by Russia's invasion of Ukraine, supply-chain constraints, labor shortages and the Biden administration's policy "to limit additional supplies into the market."
The Biden administration has pledged to release 1 million barrels per day of crude oil from the U.S. Strategic Petroleum Reserve for 180 days, beginning March 31.
Noting the current global situation, Macchiarola said, "This reordering of crude oil markets to obtain their highest level in more than seven years created a global squeeze on refined products, including diesel and gasoline. American producers and refiners are working to meet energy demand as supplies continue to lag. ... We need the administration to embrace domestic energy production, not just for the short term, but for the long term, with a forward-leading strategy for American energy leadership."
Suggestions in U.S. policy change recommended by Macchiarola included a five-year plan to develop offshore and onshore leasing on federal lands. "Additionally, both the administration and Congress should support energy infrastructure, including pipelines needed to bring product from areas where it's produced to areas where it's needed." Many U.S. pipeline developers deferred or put on hold plans to build grassroot crude oil pipelines when the onset of the pandemic drastically lowered crude oil demand. Most of these companies have given no indication of a restart of these plans.
After a brief statement on the purpose of the EMA, the call was opened for questions. To the first--Are there any plans to reopen idled refineries?, Underwood answered: "That's certainly a question for individual refineries, but there's no question that ... capacity had declined due to in part to closures on the East Coast. Refinery utilization right now is very high but the loss of refineries is significant. I think one of the challenges that both energy producers and refiners face is the investment environment as well as incentivizing a move away from fossil fuels and natural gas, but this policy objective is not reality-based; it's not market-based, so the result has been a chilling effect on investment." Underwood wouldn't comment on any EMA refiner member's specific plans to restart plants.
When asked about the high margins refiners reported during the first quarter, Macchiarola said that one of the constraints being faced was historic demand due to the pandemic and the knock-on effect of slowed investment followed by a rapid return of demand. "This created an unprecedented situation in the marketplace," he said. "Both Congress and the administration have offered no legislation to actually improve the supply and demand imbalance. The policy solution they're offering with respect to price-gouging or increasing taxes would actually have the opposite of what they say they to intend to increase the supply. ... The price of crude oil being high is what's mainly driving the price that people are paying at the pump."
While the Biden administration is encouraging exploration and production companies to produce more, oil and gas majors are following shareholders' wishes and maintaining fiscal discipline and keeping their capital close in hand, returning profits to stakeholders. Underwood said, "I think there's several factors holding back production. The first is that there are significant supply-chain constraints and labor shortages, not just within the oil and gas sector, but across the entire economy." A second factor was "a chilling effect" from both companies and policymakers who are transitioning away from oil and gas and moving toward into the energy transition era. While U.S. oil production is regaining ground, demand still outstrips supply.
When told that many of the solutions being offered by Macchiarola and Underwood would take time and were not likely to bring down prices anytime soon, Macchiarola said, "The industry makes long-term capital investments [based] on supply and demand, and so the decline in demand was so significant, so quick during COVID, and on a relative basis came back relatively quickly and so it's taken some time for supplies to catch back up." Noting supply-chain issues, labor constraints and Russia's invasion of Ukraine, Macchiarola said, "You see that imbalance reflected in the price at the pump."
Ultimately, the executives offered no near-term solutions to today's high gasoline prices, which seem probable to remain high during the U.S. summer driving season, which begins Memorial Day (May 30) and ends in September with Labor Day.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
Macchiarola began the session by explaining what has led up to current situation, as "supplies dropped during the pandemic and had a taken a longer period of time to return," noting that the situation had been exacerbated by Russia's invasion of Ukraine, supply-chain constraints, labor shortages and the Biden administration's policy "to limit additional supplies into the market."
The Biden administration has pledged to release 1 million barrels per day of crude oil from the U.S. Strategic Petroleum Reserve for 180 days, beginning March 31.
Noting the current global situation, Macchiarola said, "This reordering of crude oil markets to obtain their highest level in more than seven years created a global squeeze on refined products, including diesel and gasoline. American producers and refiners are working to meet energy demand as supplies continue to lag. ... We need the administration to embrace domestic energy production, not just for the short term, but for the long term, with a forward-leading strategy for American energy leadership."
Suggestions in U.S. policy change recommended by Macchiarola included a five-year plan to develop offshore and onshore leasing on federal lands. "Additionally, both the administration and Congress should support energy infrastructure, including pipelines needed to bring product from areas where it's produced to areas where it's needed." Many U.S. pipeline developers deferred or put on hold plans to build grassroot crude oil pipelines when the onset of the pandemic drastically lowered crude oil demand. Most of these companies have given no indication of a restart of these plans.
After a brief statement on the purpose of the EMA, the call was opened for questions. To the first--Are there any plans to reopen idled refineries?, Underwood answered: "That's certainly a question for individual refineries, but there's no question that ... capacity had declined due to in part to closures on the East Coast. Refinery utilization right now is very high but the loss of refineries is significant. I think one of the challenges that both energy producers and refiners face is the investment environment as well as incentivizing a move away from fossil fuels and natural gas, but this policy objective is not reality-based; it's not market-based, so the result has been a chilling effect on investment." Underwood wouldn't comment on any EMA refiner member's specific plans to restart plants.
When asked about the high margins refiners reported during the first quarter, Macchiarola said that one of the constraints being faced was historic demand due to the pandemic and the knock-on effect of slowed investment followed by a rapid return of demand. "This created an unprecedented situation in the marketplace," he said. "Both Congress and the administration have offered no legislation to actually improve the supply and demand imbalance. The policy solution they're offering with respect to price-gouging or increasing taxes would actually have the opposite of what they say they to intend to increase the supply. ... The price of crude oil being high is what's mainly driving the price that people are paying at the pump."
While the Biden administration is encouraging exploration and production companies to produce more, oil and gas majors are following shareholders' wishes and maintaining fiscal discipline and keeping their capital close in hand, returning profits to stakeholders. Underwood said, "I think there's several factors holding back production. The first is that there are significant supply-chain constraints and labor shortages, not just within the oil and gas sector, but across the entire economy." A second factor was "a chilling effect" from both companies and policymakers who are transitioning away from oil and gas and moving toward into the energy transition era. While U.S. oil production is regaining ground, demand still outstrips supply.
When told that many of the solutions being offered by Macchiarola and Underwood would take time and were not likely to bring down prices anytime soon, Macchiarola said, "The industry makes long-term capital investments [based] on supply and demand, and so the decline in demand was so significant, so quick during COVID, and on a relative basis came back relatively quickly and so it's taken some time for supplies to catch back up." Noting supply-chain issues, labor constraints and Russia's invasion of Ukraine, Macchiarola said, "You see that imbalance reflected in the price at the pump."
Ultimately, the executives offered no near-term solutions to today's high gasoline prices, which seem probable to remain high during the U.S. summer driving season, which begins Memorial Day (May 30) and ends in September with Labor Day.
Industrial Info Resources (IIR) is the world's leading provider of market intelligence across the upstream, midstream and downstream energy markets and all other major industrial markets. IIR's Global Market Intelligence Platform (GMI) supports our end-users across their core businesses, and helps them connect trends across multiple markets with access to real, qualified and validated project opportunities. Follow IIR on: LinkedIn.
