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
Fears of a climate crisis is leading us to an energy crisis. Policy makers around the globe are convinced that climate change is the biggest threat to mankind and equally convinced that man-made greenhouse gas emissions are causing it, are taking drastic measures to try to change it. Yet the policy decisions they are making are leading us to a world where we can expect more unreliability of energy and a coming energy crisis. The climate panic that is trying to ban fossil fuels too quickly as opposed to a level headed, multi-faceted approach is leading us to a path of a man-made energy crisis.
Climate change proponents point to Hurricane Ida and wildfires in California as proof that drastic changes are worth risking our economy and way of life. The Wall Street Journal reported today that the U.S. had its hottest summer on record, narrowly beating out highs set during the Dust Bowl in 1936. The journal said that the average temperature for the Lower 48 states from June to August was 74 degrees Fahrenheit, or 2.6 degrees above average, the National Oceanic and Atmospheric Administration said Thursday. That average is just 0.01 degrees Fahrenheit above the previous record, set in the summer of 1936. NOAA said a record 18.4% of the contiguous U.S. experienced its warmest temperatures. Five states—California, Nevada, Utah, Oregon, and Idaho—reported their hottest summers, and 16 had their top-five warmest summers on record, according to the federal agency’s U.S. Climate Report for August 2021. No state had a below-average temperature for the summer.
California has been one of the most active states in the union trying to fight climate change but it’s coming at an expense. Power reliability in California is very suspect. Reuter reported that, “California’s grid operator has asked the Biden administration to allow some natural gas power plants to operate without pollution restrictions for 60 days to shore up the state’s tight electricity supplies. California has said it faces a potential supply shortfall of up to 3,500 megawatts during peak demand hours. That is enough energy to power about 2.6 million homes.
The Wall Street Journal also reports that alternative energy sources are seeing sharp price increases. The Journal writes that, “Wind turbine makers have lost some of the wind in their sails this year. Investors can blame Covid delays, rising commodity prices, and a likely lull in orders after a frantic 2020. Commodities such as steel, polymers, copper, and rare earth elements make up about 19% of the total cost of onshore turbines and 13% of offshore ones, according to analysts at Bernstein. The price of steel—the most significant raw material—has nearly doubled this year.
Oil prices yesterday took a huge drop based on reports that China was trying to manipulate the prices of oil by selling oil from their strategic petroleum reserve. China announced officially its first sale from their strategic petroleum reserve for the stated reason to lower oil prices. Yet most analysts believe that China is not releasing any new oil onto the market but this is really confirming oil that has already been sold and released from the reserve previously. Whether it’s new oil or not, it really doesn’t matter. China is going to discover that trying to use the strategic petroleum reserve to try to manipulate prices is only going to backfire on them. The problem right now is that China’s demand for oil is exceeding supply and that’s what’s driving up prices. if you use the reserve to try to manipulate prices lower, they are only going to increase demand on the other end of the seesaw so the demand side of the equation is going to suck down that oil and want more because prices are artificially low. In other words, China’s attempt to cool off commodity prices will only have a short term impact on prices and make the market even tighter shortly.
At the same time, it might not matter because U.S. Gulf of Mexico oil production and gas production is still struggling to recover. The Bureau of Safety and Environmental Enforcement reported yesterday that the U.S. still at the slowest pace of recovery after a hurricane in the Gulf of Mexico ever. There is still 76.48% of Gulf oil shut-in and 77.25% of natural gas.
Natural gas shortages are growing. The market rebounded even after what was a week over week bearish report, based on injection expectations. That is a strong sign that the market is very concerned about adequate storage levels going into winter. It doesn’t help that U.S. production is still struggling. The EIA reported that, “Working gas in storage was 2,923 Bcf as of Friday, September 3, 2021, according to EIA estimates. This represents a net increase of 52 Bcf from the previous week. Stocks were 592 Bcf less than last year at this time and 235 Bcf below the five-year average of 3,158 Bcf. At 2,923 Bcf, the total working gas is within the five-year historical range.
This weekend the U.S. remembers the 20th anniversary of the September 11th attacks. Remember to pray for everyone who was killed in those attacks and those who have given their lives for freedom in the War on Terror over the last 20 years. The greatest way to remember them all is to pray for peace. God Bless America!
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