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
It really should be the ‘Green Raw Deal”. Global elites have sacrificed the health and welfare of the global economy in the name of saving the planet while leaving the poor out in the cold. Green energy lobbyists have secured trillions of dollars of investment around the globe, enhancing their living standards as we lower the standards for millions of people. Once again, we are seeing natural gas prices surging 40% in Europe to all-time highs putting them up 630% on the year. That’s the equivalent of oil getting close to $250.00 a barrel. That’s how expensive natural gas and it’s used to heat homes.
This is having a devastating impact on the global economy and the risk is inflation is getting to dangerous levels and threatens growth as factories may have to shut down. Products that are made will become in short supply and that will add to the global supply chain issues and bring back the 1970’s style global stagflation. Everything from plastics to fertilizer may become in short supply and could impact food supply. This is an energy crisis that has been created by the green energy lobby and by global elites that try to tell us that we can power the world with wind and solar and technologies that do not exist while they siphon your wealth in the form of egregious record-breaking energy bills.
Europe is now bearing the brunt of the crisis and despite being warned to not trust Russia, that is exactly what they are doing. Reuters reported that, “Russian President Vladimir Putin correctly blamed the transition to green energy and low investment in the extraction industries for what he said were “hysteria and some confusion” on European markets where energy prices are surging. Reuters says that Russia, a major oil and gas exporter, is facing pressure to commit to a “net-zero” emissions target ahead of the United Nations Climate Change Conference (COP26), which starts in Glasgow next month and is aimed at agreeing on new policies to fight climate change. Putin has not yet said whether he will attend. He told a government meeting on Tuesday that it was vital that the green transition happens smoothly and criticized what he described as “unbalanced decisions” and “drastic steps”.
OPEC is also blaming the global green raw deal for the crisis. OPEC Secretary-General Mohammed said that, “The current gas crisis is a wake-up call to policymakers in particular and the global community in general as the energy transition takes shape if it ever takes shape.”
The CEO of Royal Dutch Shell, Bernardus Cornelis Adriana Margriet “Ben” van Beurde, reportedly said that, “reducing oil assets is a silly concept, it’s a global need, oil and gas for many years to come.
Bloomberg reports that the European Union pledges swift action to protect the economy. EU lawmakers debated the crisis. EU energy chief Kadri Simson said he supports EU block plans to revise gas-market rules by year-end to prevent soaring energy costs from stifling the economic recovery.
We saw all of this coming. We wrote years ago that this global arrogance and underinvestment in oil and gas was sowing the seeds of the next energy crisis, and now here it is. While oil does look a bit overbought, the fundamentals for gas in the U.S. are not as critical as they are in Europe yet. The continuing upside risks in these markets must be respected. The Biden administration going all-in on the Green Raw Deal is going to hurt the U.S. economy and put us at risk. They ask OPEC, led by Saudi Arabia, for more oil yet the Biden administration has been hostile to the U.S. allies. Biden paused indefinitely two precision-guided munition sales to Saudi Arabia, worth as much as $760 million earlier in the year, and snubbed Saudi Crown prince bin Salman because of the murder of Jamal Ahmad Khashoggi, a Saudi journalist, dissident, author and columnist for The Washington Post. So now Saudi Arabia ignores Biden’s calls for more oil and gas.
Supplies will be in focus. The American Petroleum Institute (AP) gave us a post-hurricane report that may be the most bearish report we get for a while. API showed that crude supply rose by 951.00 barrels. They reported that Cushing, Oklahoma saw a surprising 1.999-million-barrel increase. They also reported a hefty 3.682-million-barrel increase in distillates up by 345,000 barrels. While these numbers look a little bit bearish for prices, this is going to be the best you’re going to see for a while. I expect to start to see some substantial crude oil drawdowns in the coming weeks and that should be very supportive. The other issue to keep in mind is, if the Energy Information Administration version of the report shows a big drawdown in supplies, then this market should very quickly go up to new contract highs. The other issue for the crude oil market is that we are overbought right now. That is a concern so we have to be on guard for a bit of a correction that in no way changes the overall bullish long-term outlook for oil.
The natural gas market in the U.S. is being driven by the global market so the energy crisis will hit home this winter. EBW Analytics says that, “while domestic natural gas fundamentals remain lackluster, spiking global LNG and rising oil prices have lifted NYMEX natural gas risk premiums substantially. At a 5% chance for an extreme cold winter in the U.S. driving convergence between NYMEX gas and global gas benchmarks, soaring European prices have added 61¢ to winter risk premiums over the past week—accounting for the entirety of recent gains. Increasing prices for ethane, oil, and global LNG similarly lifted fundamental inflection points to increase our probability-weighted scenario analysis of winter fair value to $7.50/MMBtu for NYMEX gas. Over the next 30-45 days, a strengthening US outlook—including rising LNG feed gas demand and prospects for more supportive weather—could provide bullish catalysts for NYMEX futures.
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