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
Saudi Aramco’s chief executive officer Amin Nasser made a stark warning about the underinvestment in fossil fuels that should be apparent to everyone as we get ready to face the next leg of the global energy crisis. Saudi Aramco blames the green energy movement and says that a lack of investment in fossil fuels is the real cause of the global energy crisis and that excess global oil production capacity will be wiped out once economies rebound.
Mr. Nasser was quoted as saying that, “When the global economy recovers, we can expect demand to rebound further, eliminating the little spare oil production capacity out there. By the time the world wakes up to these blind spots, it may be too late to change course. I am seriously concerned.” He pointed out that oil and gas investments fell from $700 billion in 2014 to $300 billion in 2021, with increases this year being “too little, too late.” Mr. Nasser said that, “The conflict in Ukraine has certainly intensified the effects of the energy crisis, but it is not the root cause,” the CEO said. “Sadly, even if the conflict stopped today, as we all wish, the crisis would not end.”
The Saudi Aramco CEO is saying the same thing that we’ve been saying. Global spare oil production capacity is at the thinnest level perhaps it’s ever been. While the COVID shutdowns in China and record releases from global strategic petroleum reserves may have swept the problems under the rug in the short term, it’s only going to exasperate the larger problem in the long term. Aspirational energy policy is opposed to realistic energy policy and has dealt a major blow to the global economy and put the most vulnerable people in our society at economic and health risk. Yet instead of addressing the real problem of fossil fuel shortages, many global leaders still have their heads stuck in the sand while having their back ends burned by solar panels.
The Biden administration continues its drain of our Strategic Petroleum Reserve (SPR) which may prove to be a fatal mistake as the global supply side of oil and gas tighten in the coming years. The SPR reported another huge release of 6.9 million barrels of oil from the reserve putting supplies to their lowest level since August of 1984. According to the U.S. Department of Energy, the sale of 10 million barrels of oil from the strategic petroleum reserve in November is part of the March plan to deliver 180 million barrels to the market. The US Department of Energy said the United States will sell 10 million barrels of oil from its strategic reserve for delivery in November. The United States has already sold 155 million barrels from the SPR, and its latest sale will bring that total to 165 million barrels.
Reuters is reporting that, “U.S. refiners are expected to buy more Canadian oil after the Biden administration ends releases from the Strategic Petroleum Reserve (SPR) this fall, traders said, adding this should boost the price of Canadian barrels at a time of tight global supply.
The coming end of SPR releases could shift market dynamics again in a year of high volatility following Russia’s invasion of Ukraine in February. In March the White House announced it would release 180 million barrels from the U.S. strategic reserve to help quell high prices.” Too bad they killed the Keystone XL.
Yet despite the fact of a looming energy crisis, oil prices still are fearing a potential slowdown in demand due to the recession. We have seen some crazy moves on light volume as the trade prepares for the decision by the Federal Reserve this week. The economy may be facing a severe slowdown. We can talk about demand destruction in the rearview mirror. The reality is that if it weren’t for China shutting down and if it weren’t for releases from the global strategic reserves, supplies would be much tighter than they are today. The SPR is running out of product to supply the market as we head into winter and this market is going to be faced with a huge reality check. If we get a colder-than-normal winter, I fully expect to see oil prices come close to testing all-time highs and that goes for the natural gas market as well.
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