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’s official, the Biden administration is giving in to groups like the Sierra Club and big green political donors in pausing the approval of exports of new liquefied natural gas projects on Friday. This is another slap in the face to the US Energy Industry, whose trade group the American Petroleum Institute is warning that these types of decisions from this administration are doing long-term harm to the American people’s energy security and sowing the seeds of the next major energy crisis. The move is short-sighted and will cause harm to the US oil and gas industries and could bankrupt many smaller producers who rose to the occasion and kept America warm during the recent polar vortex. Because when the going gets tough the US oil and gas industry gets going.
Just take a moment to consider the fact that during the recent cold blast, 62% of all energy in the United States was powered by natural gas. The reason why gas was the leader is because not only is it one of the most reliable heating fuels, it is because the US oil and gas industry and their cheaper prices made those supplies inexpensive and abundant.
If natural gas was not available, we would have been powered by much dirtier burning coal. I think it’s almost amazing that coal only provided 10% of the energy during the recent cold snap. Petroleum only provided 13%.
Without US producers of natural gas, the emission output by the recent record demand due to the cold would have been a lot worse. The same will be true for the world if the US, which is the “Saudi Arabia” of natural gas, decides to break its commitment to the world by providing cheap cleaner liquefied natural gas (LNG). Without US LNG exports to meet future demand needs, countries in the developing world will turn to dirtier sources of energy. Yet that is what groups like the Sierra Club must want or maybe they would just prefer that people just freeze to death and that ultimately would reduce their carbon footprint.
Oh, sure they will tell you that they just want to replace fossil fuels with clean energy sources like wind and solar but based on the data on the recent cold blasts shows that they are nowhere close to making up the difference. During the record-breaking demand, solar power was only able to provide 1% of the energy that was needed and wind power could only provide 4%.
Now with the United States and the Biden administration trying to put more reliance on unreliable wind and solar the question is during extreme weather events will we be able to keep the lights on? Will our businesses be able to thrive? Will be able to keep people alive?
Reuters reported that the Department of Energy (DOE) will conduct a review during the pause that will look at the economic and environmental impacts of projects seeking approval to export LNG to Europe and Asia where the fuel is in hot demand. The review will take months and then will be open to public comment which will take further time, Energy Secretary Jennifer Granholm told reporters in a teleconference.
Biden said in a statement: “During this period, we will take a hard look at the impacts of LNG exports on energy costs, America’s energy security, and our environment.” He said the pause, “sees the climate crisis for what it is: the existential threat of our time.”
Let’s talk about some of President Biden’s non-existential threats of our times such as the growing risk of a third world war. This morning, we are getting reports that China is sending aircraft to make a show of force against Taiwan. Today the Taiwan defense ministry said that they detected 23 Chinese military aircraft around Taiwan on Friday. This comes after Reuters reported that, “Chinese officials have asked their Iranian counterparts to help rein in attacks on ships in the Red Sea by the Iran-backed Houthis or risk harming business relations with Beijing, four Iranian sources and a diplomat familiar with the matter said. It was the Iranian-backed Houthis Rebels who showed unbelievable aggression toward ships in the Red Sea. While the Biden administration says they don’t want a direct conflict with Iran. It seems that Iran is not fearing an escalation of tensions. Iran is a major financial and logistic backer of Hezbollah and Hamas. The market is still shocked by Hamas’s horrific actions against humanity yet the Biden administration at this point wants Israel to wind down the war.
It is being reported that Biden last week pressed Israeli PM Netanyahu to scale down the Israeli military operation in Gaza, stressing he is not in it for a year of war. Global oil prices are starting to surge although Red Sea oil shipments have only been delayed and they have not been denied. Chinese stimulus hope is driving the price of oil higher and while some may be disappointed by the size of the stimulus, it will add to the growing concerns about a supply deficit.
This morning we’re getting reports that OPEC is already deciding to keep the status quo on production cuts at its next meeting. Financial Juice reports that OPEC+ JMMC meeting on February 1st is unlikely to decide on production volumes after April 1st, and will wait for several weeks – five OPEC+ sources. The potential supply squeeze in the global oil market is coming at a time when we see strong seasonal bullish patterns developing for petroleum. Not only is the seasonal tendency strong for oil to run up late January into February in the next couple of weeks, the market is already starting to prepare for the upcoming summer driving season. See there’s hope that we might see summer again.
For example, the Moore e Research Center one of the top seasonal tendency reports in the country, points out that the July gasoline over heating oil spread has gone up in February 15 years in a row, more specifically between February 3rd and February 26th. While that spread can be extremely volatile and is known as the widow maker, the tendency is extremely strong if the market starts to try to entice refiners to produce gasoline should be ready by the 4th of July. They also see a bull spread that has made money 14 out of the last 15 years and they recommend buying September RBOB versus gasoline versus December our RBOB gasoline between February 4th and February 23rd.
They also recommend September’s gasoline crack spread where you buy the RBOB gasoline and you sell the crude between February 7th and February 20th that trade has made money 15 years in a row. Another recommendation is being long June crude and short December crude in a bull spread that’s made 14 out of the last 15 years in a row.
Now everybody has to remember that despite the seasonal track records, every year is different and you also have to take into account the potential risk of each trade. Some years, even though the trades make money, sometimes you have to take an excessive amount of risk to make that profit. And yes in other words past performance is no guarantee of future results. At the same time, the market cannot ignore the fact that normally we start to see these prices rise and that could be especially true in a year where the risks to supply is high and the demand continues to stay strong.
Natural gas record-breaking demand during the cold front led to one of the largest supply withdrawals in the history of the natural gas market. Gurgen Ayvazyan reports that this year’s week 3 natural gas withdrawal was the single largest in history and was 178bcf higher than the 5-year average. EIA said that, “Working gas in storage was 2,856 Bcf as of Friday, January 19, 2024, according to EIA estimates.
This represents a net decrease of 326 Bcf from the previous week. Stocks were 110 Bcf higher than last year at this time and 142 Bcf above the five-year average of 2,714 Bcf. At 2,856 Bcf, the total working gas is within the five-year historical range. The EIA also says that the natural gas market will return to growth in 2024. Global gas demand is forecast to rise by 2.5% this year after declines in 2022-2023. Demand recovery will be supported by industries.
With that forecast, it makes no sense that the Biden administration is looking to ban LNG exports. The Biden administration is only interested and appeasing their base and their donors ahead of the election.
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