About The Author

Phil Flynn

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

Joe Biden’s push to electrify the nation’s car fleet is losing its charge faster than an electric car in cold weather. Not only are people raising real concerns about the impact that Biden’s vision is going to have on our electric grid but the environmental impact on the earth from massive lithium mining. The other obvious issue with his vision is that it will never happen without major investment from taxpayer money. The truth is that US auto makers would never have gone this far down the electric car road without a lot of taxpayer cash. Now one big cash incentive pushed by the Biden administration is under fire.

The Wall Street Journal reports Sen. Joe Manchin (D., W.Va.) said he would introduce legislation Wednesday that delays the implementation of new tax credits for electric vehicles amid disagreements with the Treasury Department over how to implement the program, a component of the Inflation Reduction Act. The Journal says that, “The tax credits of up to $7,500 per vehicle have come under fire from European and Asian allies who say rules aimed at spurring domestic production of vehicles and batteries are unfair to foreign manufacturers. Mr. Manchin’s new bill follows a decision by the Treasury Department in December to delay the issuance of the rules on battery contents and minerals until March, while allowing the rest of the program to be implemented on Jan. 1. The bill directs the Treasury Department to stop issuing tax credits for vehicles that don’t comply with battery requirements.

Now it looks like I will have to return my golf cart. I am not alone. Many EV buyers are finding that when winter sets in their charging and range fall and range anxiety are making people miserable. Pro EV website Solar Reviews says that, “You should never let your EV get below a 20% charge in winter. Cold weather makes it harder for EV batteries to heat your car, which leads to them draining more quickly. In winter weather, always have a backup plan for EV charging in case your driving range is reduced more than you anticipate; know where charging stations are located and keep your car plugged in until you leave your home. Those tips make supposed to make you feel more confident. Besides, when it goes below zero you can always turn your heat off in the car to save some juice. Just hope you don’t get frostbite.

Yet if you buy an EV, you can join climate czar John Kerry in being one of the select human beings that is going to save the planet which is almost like being extraterrestrial you know. The problem is that it might take you years to get to the point where you actually have any discernible reduction in your carbon footprint as it takes a lot of greenhouse gases to produce electric cars and more carbon burning to care for them so they can store energy produced somewhere else. That is opposed to the energy created in the internal combustion engine.

The Guardian writes, ”The US’s transition to electric vehicles could require three times as much lithium as is currently produced for the entire global market, causing needless water shortages, Indigenous land grabs, and ecosystem destruction inside and outside its borders, new research finds. It warns that unless the US’s dependence on cars in towns and cities falls drastically, the transition to lithium battery-powered electric vehicles by 2050 will deepen global environmental and social inequalities linked to mining – and may even jeopardize the 1.5C global heating target. But ambitious policies investing in mass transit, walkable towns and cities, and robust battery recycling in the US would slash the amount of extra lithium required in 2050 by more than 90%. The research by the Climate and Community Project and University of California, Davis, shared exclusively with the Guardian, comes at a critical juncture with the rollout of historic funding for electric vehicles through Biden’s Inflation Reduction and Infrastructure Investment and Jobs Acts.

So maybe just stay home. Yet gasoline demand suggests that we are not. While the American Petroleum Institute (API) did report that crude oil inventory surged by 3.378 million barrels led by a big build in Cushing, Oklahoma on refinery outages, gasoline supply increased by just 620,000 barrels, a small increase for this time of year. Distillates plunged by 1.929 reawakening concerns of shortages.

John Kemp at Reuters pointed out that China exports have been one reason, along with warm winter weather, that shortages were averted. Kemp writes that, “China’s exports of refined petroleum products, especially diesel, surged in the final two months of 2022, relieving some of the global shortage caused by unusually low exports since the middle of 2021. Exports of refined products totaled 54 million tonnes in 2022, down from 60 million in 2021 and 62 million in 2020, according to preliminary data from the General Administration of Customs (GAC). China’s exports were below normal for 16 months from July 2021 through October 2022 with a cumulative shortfall relative to the previous trend of 21 million tonnes or 167 million barrels.

Yet with China reopening are they going to be able to keep exporting? Besides, I feel very confident that we are going to see a surge in China’s oil demand, and we are already seeing signs that China is preparing for its reopening. The bearish case is that China will have to retreat from its reopening due to a renewed surge in covid cases. Yet early reports suggest that those fears are being overstated.

The bottom line is the US gasoline and diesel supply is below normal. Crude supply, if you consider the depleted oil reserve, is way below normal. We see global demand hitting record highs with a successful China reopening. We also expect that the EU price cap adds another element of upside price risk. Use weakness to get hedged as things could start to get really bullish in the next few weeks.

Winter 2023-24 is only at the halfway mark. Last year, an ultra-bearish December flipped to a cold 1Q22, spurred a months-long downturn in production, and laid the groundwork for 14-year high in natural gas prices. A similar outcome appears highly unlikely this year. October 2023 storage projections approach 4.0 Tcf with another 250 Bcf of gas-to-coal switching available to loosen the market in a bullish scenario. Henry Hub may average half of last year’s $6.45/MMBtu average in the most-likely market outcome. Critically, the shortage scenarios and associated NYMEX winter risk premiums that defined the US natural gas market heading into the past two winters appear unlikely. Instead, an oversupplied market may plumb lower in search of price-induced coal-to-gas switching to trim burgeoning inventories. By the fall, a lack of production growth could narrow oversupply while a market targeting higher end-of-season storage may absorb seeming surpluses.

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Call Phil Flynn to open your account at 888-264-5665 or email pflynn@pricegroup.com.

 

Phil Flynn

The PRICE Futures Group

Senior Market Analyst & Author of The Energy Report

Contributor to FOX Business Network

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