Fink. The Energy Report 01/12/2023

Poor Larry Fink. The Blackrock CEO is not only facing criticism for his politically motivated investment strategies, he now is complaining that governments are not doing enough to help his woke investments. Mr.  Fink complains that, “the risk of $100, $125 oil is real if the energy transition keeps forcing the oil supply down, but the government can’t force demand down.” By force, what does he mean? Recession? Lockdowns? Maybe something even more drastic. Raise the price of fossil fuels so high that the poor freeze and starve? That would surely reduce demand.

We know that there is no way in the short term that green energy can replace fossil fuels at any cost. Yet we may have to consider something so Mr. Fink can improve his returns on his massive ESG bets.

Fink’s whining comes as Blackrock is firing up to 500 staffers. This comes as investors are leaving Blackrock as the firm’s assets under management fell by $1.5 trillion. Many believe that investors are pulling money out of Blackrock because of Mr. Finks’s political investing agenda. Even in his note that announced layoffs, he said he wants to “adapt our workforce to align even more closely with our strategic priorities.” So don’t question his lack of investments in fossil fuels, the strongest sector in the market, and follow his ESG push or go out the door. In the meantime, Blackrock is expected to see a 22.4% drop in fourth-quarter profit to $8.09 per share when it reports results on Friday, according to Refinitiv estimates.

Yet all this talk about trying to fight climate change and replace fossil fuels may be ignoring the fact that fossil fuels are still the most efficient fuels on the planet. Instead of rushing to replace fossil fuels, there may be a way with innovation to use these fuels in a way that will be safer for the environment.

The Wall Street Journal reports in a must-read exclusive that, “One of the most important technologies to address climate change got a boost Thursday when a startup said it pulled carbon dioxide from the open air and stored it underground. The company has cashed in on the effort, potentially creating a viable business model that could kick-start a new industry. Climeworks AG is a leader in the race to remove carbon dioxide from the atmosphere, using a process known as direct-air capture. Customers, including Microsoft Corp., paid a significant premium to buy carbon credits generated by Climeworks, allowing them to effectively offset their own emissions.

Climeworks and others have long promised that using vacuum-like devices to pull in air, filter it and bury carbon underground can help mitigate environmental damage caused by human activities. This is the first time a company has actually done it at a meaningful scale using a third-party verified process. “We hope we are growing from a teenager to a grown-up in this industry,” Christoph Gebald, co-chief executive of Climeworks, said in an interview.” So stay tuned.

The oil trade is shaking off the massive 19 million barrels of crude oil supply increase in yesterday’s Energy Information Administration report for a multitude of reasons. Some think the (EIA) is trying to do a great reset after record supply number adjustments.

We also know that a big drop in exports, the lowest since 2021, and refineries shut down were due to the winter storms. Not to mention year-end tax considerations. Yet forget trying to overanalyze the data. Just focus on what is most important for oil, and that in the near term is the CPI.

It is expected that the CPI will come in soft which means there will be less pressure on the Fed to raise interest rates. The market seems to be leaning towards a quarter rate increase in February. That could change if the CPI comes out a bit hotter than expected. The real problem is everybody’s expecting a weak number so it might be widely priced in.

I think that oil is turning back to reality. Today, despite headlines overnight, China is not reporting its COVID numbers. Air travel is still a bit disappointing even though there’s been a surge in activity. In the last few days, the reality is that by all measures, we expect to see a surge in demand and are on track see record-breaking crude oil consumption numbers in this new year. And as Larry Fink said, the risk of $100, $125 oil is real because governments are forcing oil production down and the demand side just will not cooperate.

The lack of investment in fossil fuels and the ESG movement may increasingly be putting Americans at risk. Talk of banning natural gas buildings and even gas stoves that may be impossible to get your sautéing done correctly! Oh no! Yet the lack of clarity has caused underinvestment in those fossil fuels and pipelines.

Naureen S. Malik ad Bloomberg wrote that, “The largest US grid operator was brought to the brink of rotating blackouts during the Christmas weekend storm that plunged natural gas- and coal-fired power plants into darkness. In the first autopsy of the winter freeze that strained PJM Interconnection LLC last month, the grid operator saw 23% of its power-generation fleet shut down on the morning of Dec. 24, according to a presentation released Wednesday. PJM manages the electrical network serving more than 65 million people from New Jersey to Illinois. Natural gas-fired plants accounted for 70% of the almost 46 gigawatts of outages and few of those power generators gave notice of impending failure, leaving the grid operator in the lurch as temperatures plunged and electricity demand surged during the holiday weekend.”

For oil, it looks as if technically after an impressive string of winning days, is back above some key moving averages. The New Year price sell-off massacre may soon be forgotten as the technical picture is back in the bull court. Prices should start trending higher unless the CPI really tempers the move. As far as products like oil and gasoline, they look very bullish. The outlook would be much more bullish if the weather was cold but even with warm weather, the supply side is not keeping up with demand.

Natural gas is trying to recover but got another blow when it was reported that the Freeport LNG export terminal restart date is being pushed even further back. There is talk that the earliest it will be as February and there are even some people speculating that it might not happen until this summer. Still, because prices are getting to a level that is so oversold it still may be worth taking a flyer on buying some cheap calls. If we get some cold weather, we could see a significant snapback in price. In terms of heating degree days, January is the warmest in 15 years. That has taken the natural gas from fears of shortages to oversupply. That could switch if the weather switches but it better be doing it soon.

That’s why it’s more important than ever that you stay tuned to the Fox Business Network as well as the Fox Weather Network.

Today may be the perfect day to open your trading account! Call me at 888-264-5665 or you can e-mail me at pflynn@pricegroup.com. Sign up for the Phil Flynn Daily Trade Levels that cover all major commodity markets. What are you waiting for?