The nation’s big oil refineries are cutting back on production in an attempt to boost their profits and Odessa oilman Kirk Edwards says it smacks of collusion.
Coupled with OPEC-Plus’s recently announced intention to increase production this fall, the news is not good for the future of oil prices, Edwards said in a LinkedIn post.
“It looks like we crude oil producers have to keep a close eye on a new intangible problem to deal with and that is our very own U.S. domestic refining complex,” he said. “Who would have ever thought that would be a problem on our horizon?
“As you can read in Politico’s E&E, these refiners were operating at an impressive 94-percent-plus utilization rate for most of the year but are now all signaling that they will be reducing their run rates ahead to somewhere close to 90 percent.”
Edwards said the change is all in the name of higher profits.
“Why should we in the industry care about that?” he asked. “Simple, if the refiners lower their runs by 4 percent it means they are going to be buying 4 percent less crude oil here domestically, which in turn means oil inventories will be on the rise, which in turn is a huge negative factor on crude oil prices.”
Edwards said that combined with OPEC-Plus members saying they’ll increase production in the fall, the refineries’ new policy “can be a very bearish signal for all of us ahead.
“I can see some refiners wanting to adjust, but when the bigger group of 3 all does it at the same time it smells of collusion to some folks in the business,” he said. “We producers have a hard enough time dealing with the Biden administration continually hating on us, worrying about OPEC dumping as they did in 2020 and price fluctuations from a possible war with Iran and Israel soon.
“But now to add in our own domestic refiners lining up against us is truly a shock to me. Hopefully this will not happen, but everyone be forewarned at the refiners’ recent announcements along with OPEC always doing what they do at the most inopportune times.”
Edwards said producers must be diligent ahead and use hedging instruments, if possible, to get through this volatile season to come.
“Or maybe (insert eye roll here) the Biden administration will come to our rescue and actually fill back up the Strategic Petroleum Reserve, which they promised to do but somehow have forgotten to start on that promise,” he said.
In more refinery-related news, the Washington-based Politico’s E&E News said the refinery-owning Valero, Marathon Petroleum and Koch Industries corporations are involved in the Washington debate over a proposed climate action bill that some conservatives see as a precursor to a carbon tariff and a potential backdoor to a domestic carbon tax.
A version of the bill has already passed the Senate Environment and Public Works Committee and a companion measure is expected to be introduced in the House.
Sponsored by Democratic Sen. Chris Coons of Delaware and Republican Sen. Kevin Cramer of North Dakota, it’s called the Providing Reliable, Objective, Verifiable Emissions Intensity and Transparency (PROVE IT) Act.
Republican Congressman John Curtis, seeking the Republican nomination for an open Senate seat in Utah, plans to be the lead sponsor in the House.
Sources told the E&E energy news website that Valero and Marathon are apprehensive that the foreign oil and petroleum processed through their refineries could receive high carbon-intensity scores in the study of the PROVE IT Act.
“A refining sector executive confirmed that the industry has raised concerns on the Hill about the unintended consequences of tariffs for import and export industries but has denied lobbying against the bill on behalf of any one company,” E&E said. “The pushback against the bill by refiners shows that anxiety about the effort runs deeper than just the gripes from ideological conservatives.”
The American Petroleum Institute supports the bill, which would mandate a Department of Energy study of dozens of industrial imports.
“The idea behind the bill is that it would show the materials produced in the United States have a far lower carbon footprint, underscoring the U.S. carbon advantage in trade relationships,” the report said.
There is an urgency for the U.S. to come up with its own carbon intensity measurements, supporters say, because the European Union is in the process of implementing a tariff system based on such measurements and the United Kingdom could soon follow.
API backs the bill because it “would demonstrate our industry’s commitment to producing cleaner, safer and more affordable energy here at home while still supplying the energy our world needs,” it said.
E&E says it is highly unlikely the PROVE IT Act will become law in an election year with a divided House and Senate.
The pro-fossil fuel American Energy Alliance just began a $100,000 digital ad campaign attacking Curtis and asking Utah voters to reject “back door energy taxes.”
AEA President Tom Pyle said he was “very glad to hear that they (the refiners) are engaging and I hope more industries join them.”
Pyle also said the Republican authors of the PROVE IT Act are the only ones who won’t admit “that this is a precursor to a carbon tariff.”
Curtis’ Democratic co-sponsor is Rep. Scott Peters of California.
