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Energy Report: A Moratorium On The Drilling Moratorium

By Phil FlynnCommoditiesJun 16, 2021 09:47AM ET
www.investing.com/analysis/energy-report-a-moratorium-on-the-drilling-moratorium-200586463
Energy Report: A Moratorium On The Drilling Moratorium
By Phil Flynn   |  Jun 16, 2021 09:47AM ET
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A loss for the Biden administration but a big win for common sense. That’s what happened when a judge threw out the Biden administration’s ill-conceived drilling moratorium for oil and gas on federal lands. The Wall Street Journal reported that a federal judge in Louisiana issued a preliminary injunction blocking the Biden administration from pausing new oil-gas leases on federal land. Judge Terry A. Doughty of the US District Court in Monroe said that the administration does not have the legal right to stop leasing federal territory for oil and gas production without approval from Congress.
 
Darn! It’s that separation of power thing again. It always seems to get in the way of Biden’s agenda and his record-breaking laundry list of executive orders, designed to bypass Congress and the scrutiny from the American people. The judge pointed out that millions and possibly billions of dollars are at stake not to mention local funding for jobs and workers in the states that sued. It also dried up the funds for the restoration of the Louisiana coastline. I guess there must be some casualties in the war on carbon. The states that are suing the administration are, Louisiana, Alabama, Alaska, Arkansas, Georgia, Mississippi, Missouri, Montana, Nebraska, Oklahoma, Texas, Utah, and West Virginia. Biden’s energy policy is like having a house and wanting a different house, so you burn down the old house before you have money for a new house.
 
In the meantime, oil prices are continuing to rise as more people jump on the bullish bandwagon. Suddenly the mainstream press are reporting on the bullish fundamentals for oil that we have been talking about for over a year ago. We warned that there was severe underinvestment in traditional fossil fuels. We warned that Biden’s climate agenda would further exasperate that problem. We warned people that the demand destruction that happened because of the COVID-19 crisis would be temporary and despite the belief by many people at that time that demand destruction for oil and gas would be permanent, and that has s already proven to be incorrect. We told people that the historic OPEC production cut along with its co-conspirator Russia would be successful in reducing the oversupply that drove oil prices sub-zero to an all-time low. We told people even before the COVID-19 that the lack of investment in traditional fossil fuels was going to hurt us at some point in the future. The COVID-19 price crash exasperated the problem and now we’re facing a future of ever-tightening supply.
 
When you look at the global oil market right now, we’re seeing the most significant potential shortage situation that we have seen in many years. We could repeat the type of move for oil that we saw in the run-up to the 2008 financial crisis. The global oil market looks to be undersupplied not only in the short term but in the long term. Even if OPEC raises production and even if Iranian sanctions are lifted, we don’t believe that they have the spare capacity to meet that growing demand.
 
The Biden administration, in their war against climate change, will hamper the comeback of U.S. oil and gas production. That might be OK if we had a viable replacement at this time. The problem is we don’t. The administration has put the cart before the horse when it comes to their climate change agenda. They’re willing to restrict U.S. oil and gas production before the alternatives are available. The only way they think that’s going to happen is if oil and gas prices go up dramatically, making the cost of alternatives somewhat palatable but the problem is we don’t have the capacity from alternatives to replace growing global energy demand. Make no mistake about it that one of the legacies of the Biden administration will be sharply higher oil and gas prices. Depending on your point of view it is going to be either one of the major failures or successes of this administration. If you believe that the only way to a carbon-neutral world is to sharply raise the cost of oil and gas, then you can view the Biden administration’s policies as a victory. If you believe there’s a more sensible way to reduce carbon emissions and do it in a way you won’t hurt the economy and without sharply higher oil prices, then you can view the Biden policies as a major failure.
 
Today oil prices are going to be heavily influenced by news coming out of the Federal Reserve meeting today as to whether the Federal Reserve will start to taper back bond purchases or perhaps acknowledge that inflation is getting out of control. If the market gets a sense that the Federal Reserve is going to raise interest rates sooner rather than later, that could be a potentially put downward pressure on oil prices today but at the same time, the oil market must come to grips with global supplies that are falling at a time when global demand is rising.
 
The American Petroleum Institute yesterday released their weekly report showing a much larger than expected 8.537-million-barrel draw for the week ending June 11th. That draw was the biggest in almost five weeks and if it is repeated by the Energy Information Administration report today at 9:30a, that could be a factor in causing oil prices to continue their upward trend. The reason that the market is not more excited about that huge crude oil draw is that we did see a pretty good increase in supplies for products. The API reported that gasoline supplies increased by 2.852 million barrels and distillate inventories increased by 1.956 million barrels. The increase in products suggests that we are still seeing large imports of gasoline and diesel in the aftermath of the colonial pipeline shut down.
 
China’s crackdown on commodity prices may work in the short term but in the long term will fail. China, trying to cool down prices by releasing commodities from their reserve, could cool prices in the short term but if they try to cap prices for commodities they will end up with shortages. In the meantime oil traders don’t have to worry about slowing China’s demand at least right now. Based on recent data, Chinese crude oil refinery runs hit an all-time high of 14.3 million barrels a day, that is up a whopping 11.6% from a year ago. They are using a record amount.
 
Natural gas prices may have put in a little bit of a short-term top after record-breaking high temperatures in the Midwest cooled off. Still, we’re getting a little bit of a preview of our future under alternative energy where states that rely on alternative energy are wanting their customers to reduce their usage or face rolling blackouts. Both Texas and California are making those warnings that the strong demand due to warm temperatures is taxing the system and it could lead to blackouts.
Energy Report: A Moratorium On The Drilling Moratorium
 

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Energy Report: A Moratorium On The Drilling Moratorium

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Comments (5)
Jeffrey Drake
Jeffrey Drake Jun 22, 2021 5:39PM ET
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The demand is for affordable clean energy that doesn’t cause drought, massive wild fires, death by heatstroke, crop failures, “500-100-yr” floods, and sea-level rise. It’s not just demand for affordable energy. Happily, solar and wind keep getting cheaper. As batteries become cheaper and (massively) more prevalent, and hydrogen becomes viable (over decades)... who will want oil and coal? Or even natural gas? I’ve has solar panels for 4 yrs and a hybrid car for 6 yrs. Looking forward to my first EV, which might be the last car I buy.
Jeffrey Drake
Jeffrey Drake Jun 22, 2021 5:21PM ET
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You talk as if the Biden administration is pushing oil prices up, even as you acknowledge the problem is imbalance between supply/demand. Electric vehicles are part of the solution here… Lower oil demand lowers oil prices. People who like to consume fossil fuels, should thank people who consume green energy for keeping their bills down. Look for more EV sales as gasoline prices rise.
Jeffrey Drake
Jeffrey Drake Jun 22, 2021 5:13PM ET
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Any rolling blackouts caused by the incredible heat wave are a result of global climate change, and renewable energy a necessary partial solution to that. The cause of climate change, the burning of fossil fuels, must be sharply curtailed for good of the American west, south, gulf of Mexico, coasts, and farmers nationwide. TX is blessed with abundant wind and solar energy, and even as an oil state recognizes the economic benefits of “going green.”
Lord Lucepha
Lord Lucepha Jun 20, 2021 11:26AM ET
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good
ELVIZ HotGaz
HotGaZ Jun 17, 2021 3:43AM ET
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The elephant in the room wasn't addressed, the Electric Car revolution is here and it's growing.  Crude oil golden years are in the rearview mirror.  Also, New Mexico just set a new oil and gas production record, source eia.
 
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