Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
The price of the green energy transition is starting to worry policymakers across the globe as it is becoming apparent the rash move to alternative energies is going to be so costly that it could put the global economy at risk. The fears of inflation, or what could be called green inflation, are starting to hit home to policymakers that maybe have not thought about the real cost of the energy transition and the impact that is going to have on people’s daily lives.
Still in the near term, the oil market did see a correction yesterday. Today oil prices are trying to shake off concerns about a resurgence of the delta variant of the covid 19 virus in China, as well as weak manufacturing data that came out of China over the weekend. Travel restrictions in China due to the resurgence of the covid-19 delta variant and concerns about the Chinese crackdown on stocks, are still oil price foes. China is renewing travel restrictions and canceling flights. The nation’s top energy producer, CNPC, estimates a 5% fall in short-term oil demand. China tried to calm the markets and even reach out to the SEC to try to smooth over new risk disclosures that the SEC are going to require on Chinese companies.
Fears of covid-19 are a reality but a slowdown in oil demand isn’t happening right now. We’ve seen data from India that shows their demand is back to post covid-levels. We’re seeing air travel hit the highest level that we’ve seen since the covid-19 shutdown. If we had more airline capacity those numbers would possibly be higher as airlines are going to have to add more flights and that’s going to mean more demand. The biggest risk is if we see more shutdowns due to this delta variant of the coronavirus. If that doesn’t happen, we’re going to be very under supported.
OPEC compliance numbers came out better than expected and that also is very supportive to price. OPEC compliance pledged cuts was 115% the survey found, versus a revised 118% in June. The Organization of the Petroleum Exporting Countries has pumped 26.72 million barrels per day (bpd) the survey found, up 610,000 bpd from June’s revised estimate. Output has risen every month since June 2020 apart from in February according to Reuters. OPEC countries were expected to raise production and have not done so. That means there’s less oil in the market than had been expected.
Investing in oil companies right now has the same type of as investing in tobacco companies a few years ago. Investors who want to reduce their energy footprint or their carbon footprint are not investing in energy and that is starting to show up in the overall numbers. What this means for oil is that we’re going to be in a sustained bull market that could last not only a day or a week but possibly years.
That’s not only my view but also the view of BP Chief Executive Bernard Looney who said he’s very bullish on the price of oil and he expects we will be in a bull market for oil for the next 5 to 10 years.
Mr. Looney is seeing what I’m seeing when it comes to investment and the lack thereof.
The Biden administration wants to spend a lot of money on electric charging stations in the U.S., yet they haven’t given thought to how we’re going to power those electric charging stations. It is going to take fossil fuels or nuclear power or something to change this. I don’t want to get into the rare minerals issues of cobalt and its impact on the environment today because it’s just going to ruin an environmentalist’s vision of what a new energy world is going to look like. You don’t want to get into the messy details of ugly fields of solar panels and ugly wind turbines. Or the number of fossil fuels it is going to take to scale up those forms of energy that are not as reliable. People are going start to question the sanity of the whole thing.
It is insane if you go to the gas pump. As we predicted, to vote for Joe Biden was a vote for higher gasoline prices. While there’s a lot of factors that have driven up gasoline prices, there’s no doubt that Biden’s policy has added to the cost of gasoline. Triple-A reports the national average for gasoline is at $318.2 a gallon. Or as they put it, “Americans are paying a pretty penny to hit the road this summer. The monthly national gas price average has increased from $3.00 in May to $3.07 in June to $3.15 in July. The beginning of August will likely be as expensive as July, especially as crude oil prices remain over $70 per barrel. An increase in global crude production is expected this month. However, even with the additional supply, global demand could outpace global supply and keep prices high. “On average, motorists are paying 15 cents more to fill up since the beginning of May,” said Jeanette McGee, AAA spokesperson. “August could prove to be even more expensive if crude oil prices increase, driven by market concerns of rising COVID case numbers and how that could negatively affect global demand shortly.”
On the week, the national average increased by two cents to $3.17 with the majority of states seeing jumps between two to ten cents. Today’s average is a nickel more than a month ago and 99 cents more than a year ago.
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