Oil is again on a tear as demand exceeds supply and the great green energy transition is indeed a major part of the blame. From shortages of natural gas in Europe, and coal in China and India, and prices rising sharply in Japan, it appears that the energy world is falling apart. Europe made the mistake of closing natural gas production fields and closing nuclear power plants only to become more reliant on its historical foe, Russia. Reports now say that Russia will refuse to pump any more natural gas to Europe unless they approve the Nord Stream 2 pipeline. Fuel switching from gas and coal will boost global oil demand by 500,000 barrels a day during the northern hemisphere winter, according to most estimates. Yet, with world leaders looking to double down on the madness, the real costs of this transition in human terms, geopolitical and economic terms, is coming to light.
ZeroHedge reported: Last week, Bank of America sparked a firestorm of reaction amid both the pro and contra climate change camps, when it published one of its massive “Thematic Research” tomes, this time covering the “Transwarming” World (available to all ZH pro subs), and which serves as a key primer to today’s Net Zero reality, if for no other reason than for being one of the first banks to quantify the cost of the biggest economic, ecologic and social overhaul in modern history. The bottom line: no less than a stunning $150 trillion in new capital investment would be required to reach a “net-zero” world over 30 years – equating to some $5 trillion in annual investments – and amounting to twice current global GDP.
Needless to say, the private sector has nowhere near the capital required to complete this investment ,which is why Bank of America generously estimates that all or parts of the bill would have to be footed by central banks in the form of tens of trillions in QE. And since QE is essentially debt monetization, and since $150 trillion in new debt would have devastating consequences on the economy, Bank of America was kind enough to share its calculation of just how inflationary this billionaire pet project would be: the “full monetization” scenario, where central banks inject $5 trillion in liquidity every year via QE for 30 years, would result in incremental 3% of inflation for a good decade. This is inflation over and above whatever is already coming down the pipeline as reported by Zerohedge.
This nightmare scenario is becoming more of a threat to the global economy. The demonization of oil and gas has caused a lack of investment and the world is going to face unprecedented shortages unless cooler heads prevail. The Biden administration needs to change course immediately from an energy policy that is putting the country at risk. The White House again said it is still pressing OPEC for more production and cracking down on so-called ‘price gougers.’ It say it is addressing the logistics of supply. How about approving the Keystone Pipeline! That might free up some truck drivers that are now moving oil that normally could go through a pipeline. Of course, OPEC is not responding to White House pleas.
Reuters reported: “OPEC+ compliance with oil cuts fell slightly to 115% in September, sources said, indicating that as the alliance raises production targets, some members are still falling short as they face challenges in pumping more oil. The Organization of the Petroleum Exporting Countries and allies led by Russia, or OPEC+ as the alliance is known, raised its output targets by 400,000 barrels per day (bpd) in September. It has also agreed to raise them by a further 400,000 bpd in October and in November."
Underinvestment and maintenance problems have stymied efforts by Angola and Nigeria to raise output, an issue that is expected to continue impacting the West African producers in the near future.
In the U.S., we should see our oil supply fall significantly this week, but I may be in the minority on that thought. Reports of substantial draws in the Cushing, Oklahoma, delivery point may even out of data from recent weeks and should show another draw in supply. Refinery runs should also rise as margins are good.
This comes as Bloomberg reports: “Oil output in America’s most prolific shale patch is getting closer to levels seen before the pandemic-driven market crash, as crude prices surge. While total production in the U.S. is still lagging, the Permian Basin of West Texas and New Mexico is increasing output to an average of 4.826 million barrels a day in October, according to a U.S. government report Monday." That’s close to a revised 4.913 million barrel-a-day record set in March 2020, just before the pandemic unleashed widespread demand destruction globally, triggering production shutdowns and bankruptcies across the country.
At least natural gas took a break from ridiculously high prices as weather forecasts turned warmer. Still, users of natural gas should use the break to hedge not only for winter but into summer. We continue to warn of potential price spikes. All of that talk of lower for longer and peak demand was just a bearish fantasy. Kind of like the fantasy that wind and solar can replace oil and gas. While it was not popular to predict this energy crisis that we are in a few years ago, now that it’s here, you have to get prepared.