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
In our quest to save the globe from what the Biden administration says is an existential threat, we are seeing the drive against fossil fuels force more people around the globe into poverty. The rising cost of energy has added to inflation and has made food scarcer and more expensive as many must choose between food or fuel.
Saudi Energy Minister Prince Abdulaziz bin Salman at the 14th joint ministerial meeting of G20 energy ministers on clean energy in India, called out the hypocrisy of building the green energy transition on the back of the poorest in the world. After listening to countries saying that we need to continue to invest more money in failed energy policies that have already destabilized the world and has made necessities too expensive for the poorest of the poor, he seemed frustrated from the climate zealots that continue to preach the gospel of climate change. He said, “I hear a lot today about morality. I just cannot think of any more important cause the energy poverty to tell you the truth. It affects billions of people and therefore it has to be the most supreme more important as the excellence university of energy experts we need to increase our efforts to end energy poverty.”
Yet it seems we are on a path where energy reliability and cheap energy is at risk. The promises that somehow an interruptible power source is going to be cheap and easy and to use draconian measures to ban the gas stove and ban the use of natural gas and try to fast track electric cars that add to greenhouse gas emission and will over tax the globes power grids that will ultimately make energy for the have and will leave out the have nots. Governments that make decisions based on political ideology and not based on science and energy reality, are raising the cost and the availability of fuel. While we add to the human misery with the climate transition, is it really worth it?
Zero Hedge reported that, “Earlier this month, the 2022 Nobel Physics Laureate Dr. John Clause slammed the ‘climate emergency’ narrative as a “dangerous corruption of science that threatens the world’s economy and the well-being of billions of people”. Inevitably, the punishments have begun. A talk that Dr. Clauser was due to give to the International Monetary Fund on climate models has been abruptly cancelled, and the page announcing the event removed from the IMF site.” They go on to say that, “Clauser is the latest Nobel physics laureate to dismiss the notion of a climate crisis. Professor Ivar Giaever, a fellow laureate, is the lead signatory of the World Climate Declaration that states there is no climate emergency. It further argues that climate models are “not remotely plausible as global policy tools”. The 1998 winner Professor Robert Laughlin has expressed the view that the climate is “beyond our power to control” and humanity cannot and should not do anything to respond to climate change.”
In the US, we are going to see supplies drain as we have seen the result of SPR releases and regulation cut back on fossil fuel investment. Last week Baker Hughes reported that the U.S rig count fell by 6 rigs, that is down 89 riggs from a year ago and does not bode well for further oil and gas production in the US. That is why the Energy Information Administration (EIA) cut its forecast for 2023 U.S. crude oil production by 50,000, expecting only a 670,000 barrels per day (bpd) to 12.56 million bpd this year, less than a prior forecast calling for a gain of 720,000 bpd as reported last week. We are also seeing oil production fall in Canada. Jodi reported this morning that Canadian Oil production fell by 197.000 barrel a day which is a 27-month low.
In the big picture Paul Dial, PhD points out that the EIA forecast world crude consumption to grow +1.8 Million Barrels a day (mbd0 and 2023 and 1.7mbd 2024. If growth slows to +1.5mbd/yr. thereafter, global consumption is still 120mbd by 2035 and 127mbd by 2040. Current global production is 101mbd. If we are going to meet that demand, the need to add a lot of production and make massive investments in fossil fuels to meet that demand and sadly that is not happening.
There continues to be tightness in supply of diesel fuel and in Europe we saw the cost of diesel rise over $800 metric ton which according to Bloomberg News was the highest price in 4 1/2 months. This is happening even though manufacturing in Europe has been relatively weak. In fact the eurozone flash PMI came out of 42.7 this morning that was lower than expected. We also saw weakness in the UK and in Germany and in France where the PPI all came in weaker than expected.
This week crude oil prices are going to be on guard of a potential rate hike from both the ECB and the Federal Reserve. Yet the market must start to $359.6 a gallon national average regular. That is up from $3.565 a week ago. The protection for more heat and the lack of rain is not only driving natural gas but grain prices which are again on the rise.
Oil and gasoline product should continue to tighten in the coming weeks. There continues to be extreme upside risks in the price of oil. The instability in the world with increased tensions with Iran, increased tensions with China continue to keep upward potential on the price of oil. The war in Ukraine and the failure of Russia to adhere to the EU price cap is not a surprise but also shows the futility of the policy in trying to subdue Russia. It’s time to get protection for a potential price spike. Every day that goes by, the potential for this spike gets larger and larger.
Natural gas is backing off a three-week high but still looks very solid. The heat wave is keeping prices elevated and there is an expectation that the injection in supply will be a meager 17 BCF this week.
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