The International Energy Agency (IEA) somehow seems astonished that the world is headed for a major oil shock. Yet all they had to do was attend some of my Money Show webinars and read my Energy Report or listen to my interviews on the Fox Business Network to know that this was inevitable. The IEA lost its focus and 200 million barrels of oil and became a shill for the green energy movement.
Now, on Saint Patrick’s Day, I usually do not have anything bad to say about green! But in this case, I will make an exception.
The IEA gave Europe the false impression that they could do without fossil fuels. That left Europe vulnerable. They sold Europe on the green agenda because the green energy movement has a hankering for the green as in green money. It is not about energy efficacy or energy security.
The push for the green in the name of saving the planet meant that everyone would have to pay more green, and the green energy folks would get full of the green along with a pot o’ gold.
The Biden administration started to implement the same type of green Paris Climate accord plans and openly shamed oil companies and oil investors. That discouraged investment, helping add to the global oil shortfall. Oil prices are also rallying on news that China is reopening some cities after a COVID scare and reduced hopes for a ceasefire deal in Ukraine. Yet behind the seams of this so-called Putin rally is this has been an energy crisis created by stupid and shortsighted energy policy.
The IEA reports say that global energy markets are at a crossroads when faced with what could turn into the biggest supply crisis in decades. Russia’s invasion of Ukraine has brought energy security back to the forefront of political agendas as commodity prices surge to new heights. While it is still too early to know how events will unfold, the crisis may result in lasting changes to energy markets. The implication of a potential loss of Russian oil exports to global markets cannot be understated. Russia is the world’s largest oil exporter, shipping 8 mb/d of crude and refined oil products to customers across the globe.
Unprecedented sanctions imposed on Russia to exclude energy trade for the most part, but major oil companies, trading houses, shipping firms, and banks have backed away from doing business with the country. For now, we see the potential for a shut-in of 3 mb/d of Russian oil supply starting from April, but losses could increase should restrictions or public condemnation escalate.
For products, the IEA says that refiners, particularly in Europe, are scrambling to source alternative supplies and risk having to reduce activity just as very tight oil product markets hit consumers.
There are scant signs of increased supplies coming from the Middle East or of a significant reallocation of trade flows. The OPEC+ alliance agreed on 2 March to stick with a modest, scheduled output rise of 400 kb/d for April, insisting no supply shortage exists. Saudi Arabia and the UAE – the only producers with substantial spare capacity—show no willingness to tap into their reserves so far.
Why would they? The Biden administration wanted to make Saudi Arabia a pariah state, and Russia has made itself a pariah state. U.S. energy could have helped, but they continue to get bashed and maligned by the Biden administration at every turn. In the meantime, OPEC is calling the shots because they control the bulk of spare oil production capacity.
The latest outrage against the U.S. energy industry is the false accusations by the president that U.S. oil companies are profiteering from the Russia Ukraine war. Biden tweeted: Oil prices are decreasing, gas prices should too.
Last time oil was $96 a barrel, gas was $3.62 a gallon. Now it’s $4.31. Oil and gas companies shouldn’t pad their profits at the expense of hardworking Americans. As Joe Biden would say, that is just plain malarky. In fact, if you look at the charts, the rise in gas price at the pump did not keep up with the increase in the price of crude. Energy companies made fewer profits on the price spike, not more. Biden needs to quit smearing the U.S. oil and gas industry and its workers. It is not true. They deserve an apology.
At least for natural gas, the Biden administration did this right and has been supportive. The Hill reported that the Biden administration said Tuesday that it would issue orders that expand the amount of liquified natural gas (LNG) that it exports as Europe seeks to reduce its reliance on Russian gas. The Energy Department said that two authorizations it issued would give two facilities the ability to export an additional 720 million cubic feet per day of natural gas.
In the first half of last year, the U.S. exported an average of 9.6 billion cubic feet per day. The department said that its latest move would give every U.S. LNG export project the ability to export at full capacity.
Hedgers need to continue to hedge on breaks. Despite the sell-off, upside risks remain. We have advocated being hedged for over a year, and we believe that needs to be done.