The International Energy Agency (IEA) gets the hypocrite of the week award by calling on OPEC+ to raise output to cool prices after just releasing a report last month calling on the world to stop investing in fossil fuels right away to achieve net-zero carbon emissions by 2050. Now the IEA is saying that energy investment will recover by 10% in 2021 but spending will fall far short of meeting urgent climate goals and those energy companies are not doing enough to go green, yet looks to OPEC to cool rising prices. It is madness.
Perhaps Saudi energy minister Prince Abdulaziz bin Salman said it best in his reaction to the IEA’s recent report outlining a roadmap for the world to achieve net-zero carbon emissions by 2050 by saying: "I would have to express my view that I believe it is a sequel of [the] La La Land movie. Why should I take it seriously?"
Why should we take it seriously? Why should we take the so-called fact-checkers seriously, that claim that Biden administration policies have no impact on oil prices? The Biden administration suspended oil drilling leases in the Arctic National Wildlife Refuge yesterday, which will reduce the oil supply. Less oil higher prices. This comes as his drilling moratorium on federal lands continues and his aversion to pipeline approvals is causing U.S. drillers to not respond to what is a major surge in demand to the global economy reopening. Pressure on big oil companies to go more green means that we will have less oil and higher prices for oil and gas, those are facts.
OPEC is not in La La land. The group, as expected, is going ahead with its gradual 2-million-barrel production increase through May, yet they also noted the ongoing strengthening of market fundamentals, with oil demand showing clear signs of improvement and OECD stocks falling as the economic recovery continued in most parts of the world as vaccination programs accelerated. They put OPEC+ compliance at 114%. Not bad for the former group that used to put the C in cheating.
OPEC is signalling better demand and we agree. Yesterday’s ISM manufacturing composite index came in at a sizzling 61.2 in May. That signals a surge in oil and gas demand. It also suggests that the oil market is heading towards a very tight market and a potential coming oil price shock. This comes just a year after many market watchers were making predictions of lower oil prices for longer and crazy predictions of permanent demand destruction. U.S. gasoline demand reached the highest since the start of the pandemic in the week leading up to Memorial Day. Javier Blass at Bloomberg reported that the vaccine roll-out, a bank holiday and sunshine pushed UK traffic last week (7-day average) to 101% of pre-COVID, the first positive reading in 15 months.
The world’s ravenous appetite for oil is not going to be quenched by some policy wonks in Paris. And the failure to face up to this reality means that the transition to a lower-carbon world will be a lot more painful than it had to be.
We have many times over the past year warned speculators and users of oil and products to prepare for upside risks in the market. It was not a popular position a year ago, but it has turned out to be the right one. We also said that a vote for Joe Biden was a vote for energy prices. While the fact-checkers tried to cover for the administration, any rational thinking person had to know that reducing the supply of oil and gas at a time when demand was rising would lead to higher prices. You also had to know that to reach the objectives stated in the Paris Climate accords or the IEA blueprint, you had to reduce investment in fossil fuels, which makes them more expensive. If you did not know that, you could be in the sequel to La La Land. The Biden administration’s signals to Wall Street were clear that if you want to be a friend of this administration, you had better invest in green and not fossil fuels or you would be looked at as a dinosaur.
Russian hackers again are going after the U.S., attacking JBS, the world’s largest meat-processing company, reminding markets that hackers can attack at will and can at any time shut down important aspects of our economy. JBS shut down operations yesterday but expects to reopen today as the hackers get another payday. Cattle futures got hit hard, as animals could not get slaughtered and wholesale prices rose. That could change as the company says they have made “significant progress” to resolve the cyber attack that hit its global operations and will have the “vast majority” of its plants operational on Wednesday. In another word, they probably paid the ransom, so the U.S. did not face meat shortages and panic buying.
The Biden administration had better get ahead of these hacking incidents. Russia is getting more U.S. dollars from oil as well as the lucrative hacking trade. Russian hackers seem to be a lot more active since Biden has become president. Check Point Research (CPR) published its latest snapshot of ransomware trends across the globe, citing a 102% increase in organizations impacted by ransomware this year compared with the beginning of 2020.
CPR calls the new ransomware threat “Triple Extortion.” It says 1,000 organizations were impacted by ransomware each week on average in Q2. The Most attacked industry sectors are health care (109 attacks/week on average), utilities (59 attacks/week on average) and insurance/legal (34 attacks/week on average).