Buffett Bets Big On Natural Gas

Lawsuits stymied the Atlantic Coast Pipeline plans
OIl demand rises while productions falls
Oil production hits biggest decline since 2008
The Energy Report

The Energy Report

 

The Phil Flynn Energy Report 

Blood On The Streets

Warren Buffet was quoting Baron Rothschild when he said to “buy when there is blood on the streets,” and there is blood on the streets in the global natural gas market. Well, Warren Buffet and Berkshire Hathaway spent $4 billion and assumed $10 billion in debt to buy Dominion Energy Inc. The purchase came right after Dominion and its partner Duke Energy canceled the Atlantic Coast Pipeline, a planned natural gas pipeline slated to run 600 miles from West Virginia, through Virginia, to eastern North Carolina.

The goal was to power out the country with cheaper and cleaner natural gas but was stymied at every turn by lawsuits. Even a big win in the Supreme Court was not enough as more lawsuits continued to pop up. Dominion and Duke said in a joint statement, “This announcement reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the United States. Until these issues are resolved, the ability to satisfy the country’s energy needs will be significantly challenged.” In the meantime, Dominion stock is up over 6% on the news that Buffet now owns it. The question now becomes, how long before the lights start going off for seven million customers in 20 states.

Oil prices remain stable as demand continues to rise and U.S. oil production continues to tumble. Bloomberg is reporting that “Saudi Aramco lifted the official selling price for flagship Arab Light crude to customers in Asia, its biggest market, for a third straight month,” in a sign that demand for oil is strong, though by less than traders expected. In a statement, Saudi Aramco said, “The grade will sell in Asia at $1.20 a barrel above the Middle East benchmark, compared with a $0.20 premium for July.”

The Wall Street Journal is confirming what we have been saying about the historic collapse in oil production. The Wall Street Journal reports that “U.S. crude supply is falling at its quickest pace ever, easing a global oil glut and spurring a swift recovery in fuel prices.” Government data shows that weekly U.S. output recently fell to 10.5 million barrels per day (BPD), down from a near-record of 13 million BPD from late March. With companies from Chevron Corp. to Continental Resources Inc. shutting in productive wells in response to the coronavirus, the slide marks the most significant 11-week drop on record in figures going back to 1983. In percentage terms, the decline is the biggest since the 2008 financial crisis, when U.S. oil output was less than half of what it is now.

Gasoline prices held steady; unusual for a unique Fourth of July Holiday weekend. Social distancing and less travel are keeping demand for gas subdued, but the trend is still trending higher. Weak refining margins and rising demand should support RBOB futures this week. Oil is consolidating and a strong stock market in China bodes well for oil demand. Signs that Gulf Coast supplies in the U.S. are falling is giving oil a bit of a floor as well.

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About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.