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The Energy Report: Eve Of Demand Destruction

By Phil FlynnCommoditiesApr 08, 2022 10:09AM ET
www.investing.com/analysis/the-energy-report-eve-of-demand-destruction-200621845
The Energy Report: Eve Of Demand Destruction
By Phil Flynn   |  Apr 08, 2022 10:09AM ET
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Bad energy policy based on climate change hysteria is having major negative consequences for the world and is taking food out of the mouths of babes.
Green energy policymakers have a lot to answer for. They need to take responsibility as war wages in Ukraine and food shortages loom.

Oil prices will try to assess the impact of rising interest rates, more oil from global strategic reserves, and increasing global COVID cases. Natural gas prices have soared in the U.S. to the highest levels since December of 2008.

The run-up in U.S. natural gas still looks cheap in the global market where Europe and mainly Germany are paying the prices for their short-sighted and dangerous green energy policies. They are looking to the U.S. to fill their future natural gas needs. Prices have been trending higher since Biden vowed that the U.S. and other nations would increase liquified natural gas exports to Europe by 15 billion cubic meters this year.

This comes as U.S. gas supplies, where production has been slowed by the Biden administration’s anti-fossil fuel policies, have left the U.S. natural gas inventories 17% below their five-year average.

The Energy Information Administration (EIA) is pegging stocks at 1.382 trillion cubic feet for the week ended April 1. In Europe, stocks are around 20% below their five-year average, according to Myra Picache at MarketWatch.

“In Europe, storage facilities are currently only 25% to 27% filled, and the demand to refill storage will be high, keeping prices elevated.”

Surging natural gas prices have caused sharp rises in fertilizer costs in a world where the food supply is tight. This reflects the importance of natural gas in the global energy transition. It also points out the folly of the green energy zealots that made the cleanest burning fossil fuel into a pariah and closed major European production fields leaving Europe short of supply, rising food costs, and have helped take food out of the mouths of the poor.

Reuters reported that world food prices jumped nearly 13% in March to a new record high as the war in Ukraine caused turmoil in markets for staple grains and edible oils. Food prices are rising at the fastest pace ever in part due to bad decisions made by green energy politicians and policymakers.

At 11 am central time, we will get the U.S. World Agricultural Supply and Demand Estimates prepared and released by the World Agricultural Outlook Board (WAOB). The report is released monthly and provides annual forecasts for the supply and use of U.S. and world wheat, rice, coarse grains, oilseeds, and cotton. The report also covers the U.S. supply and use of sugar, meat, poultry eggs, milk, and Mexico’s supply and use of sugar.

This is becoming more critical for energy traders as the Biden administration wants to use more food for fuel to lower gasoline prices. CNBC reports that the fertilizer shortage has added to growing concerns about the Ukraine war’s impact on the price and scarcity of certain essential foods. Combined, Russia and Belarus had provided about 40% of the world’s exports of potash, according to Morgan Stanley. Sanctions hit Russia’s exports. Further, in February, a major Belarus producer declared force majeure — a statement that it wouldn’t be able to uphold its contracts due to forces beyond its control.

Europe, of course, is dependent because of its years of bad energy policy, allowing it to become dependent on Russia for supply. Europe can’t even ban Russian coal exports right away. While some in Europe want to move to get off Russian oil and gas, the sad reality is that Europe has become so dependent on Russian oil and gas that even with the outrage that we see in Ukraine, they can’t cut themselves off from supply because it will put their economies into a recession.

For years we’ve heard that climate change hurt developing countries, and we have yet to see any real evidence that that was the case. We see that with the record rise in food prices. The Biden administration needs to act to try to avert a global food shortage. He should look to the U.S. agriculture industry to free up acres that have been held back because of the CRP program. He needs to lead on the coming food crisis and not follow. He needs to reverse his resentment of the Trump Era energy policies that can help ease the strain on the global economy and help ease the pain on the poor and middle class.

Democrats in Congress, instead of accusing oil companies of price gouging, should be apologizing to the American people for the radical anti-fossil fuel agenda that has helped cause this spike in energy prices. Instead of berating the U.S. oil and gas industry, work with them so we can create the best, most realistic, and clean energy transition around the globe.

We can’t save Europe without U.S. natural gas. The Biden administration admitted that and promised gas from the same industry that the democrats accused of war profiteering. The facts are that we better hope that energy companies look profitable because the Biden administration has shamed investors from investing in those companies. To attract capital, they had better be making huge profits.

Oil prices are starting to price in the SPR oil, but it is clear that while it may cool prices for a while, the global undersupply will continue until we go into a global recession.

Jon Kemp at Reuters reports that the Brent oil six-month calendar spread has fallen to a backwardation of less than $5 per barrel from a record high of more than $21 a month ago, as the pledge by IEA members to offer 240 million barrels of oil from government-controlled strategic reserves over the next six months has eased traders’ concerns about short-term availability.

The South China Morning Posts reports that even Chinese billionaire Kathy Xu Xin struggles to buy milk and bread under Shanghai’s coronavirus lockdown. While residents in Shanghai try a variety of novel ways to buy daily essentials during the city’s coronavirus lockdown, billionaires, it seems, are no exception.
The city recorded 19,982 Covid-19 cases yesterday, setting a daily record for the sixth day in a row.

The city’s 25 million residents remain under a hard lockdown as authorities struggle to contain the virus and carry out mass testing. On Thursday, a screen capture of a message by Kathy Xu Xin, dubbed “China’s venture capital queen”, asking for ways to buy bread and milk for her family went viral on the social media app WeChat.

Oil prices are trying to bottom. There is extreme volatility because of the concerns about China’s slowdown, the impact, and the speed at that these SPR barrels will hit the global market. Yet the release of oil supplies is the wrong cure for the wrong disease and will backfire. In the long run, short-term oil price relief will be met with longer-term price pain and will feed into the lack of investment in the global oil space. We are putting on hedges. Look to buy products and sell crude as a hedge for one possible play. Look to use the weakness to put on some long-term bullish options strategies in the backend.

The natural gas market is in a parabolic mode. There could be a correction at any time but make no mistakes; this is a forerunner of higher natural gas prices in the future. We were recommending months ago to put on hedges for the summer months. Hopefully, you did that.

The Energy Report: Eve Of Demand Destruction
 

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The Energy Report: Eve Of Demand Destruction

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Comments (6)
davis clark
davis clark Apr 13, 2022 9:22PM ET
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Excellent!!!’
Ken Chao
Ken Chao Apr 13, 2022 8:43AM ET
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and how about india buy more oil at great discount from russia and resell to europe at much larger margin but still cheaper than US oil?
Ken Chao
Ken Chao Apr 13, 2022 8:41AM ET
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good discussion but isn't it good for US gaining more market share for its oil n.natural gas in europe? and make more US companies in the sector become much more profitable again?
Haseeb Jani
Haseeb Jani Apr 09, 2022 9:03AM ET
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thnxc
Tuấn Nta
Tuấn Nta Apr 09, 2022 12:09AM ET
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Thanks
Mohd Izhar Muslim
Mohd Izhar Muslim Apr 08, 2022 10:31AM ET
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Great Once, Thank you for the article 💯
 
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