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The Energy Report: The Energy Weapon

By Phil FlynnCommoditiesNov 12, 2021 11:00AM ET
www.investing.com/analysis/the-energy-report-the-energy-weapon-200608214
The Energy Report: The Energy Weapon
By Phil Flynn   |  Nov 12, 2021 11:00AM ET
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Maybe instead of saving the planet from climate change, we should spend more time worrying about saving the planet from World War III. Europe and the Biden administration seem to fail to understand the vital importance of energy security, not only to keep warm and keep your economy going but from a national security standpoint. When energy supplies become vulnerable, the entire country becomes vulnerable. It’s a lesson that should have been learned after the Arab oil embargo and World War II. Europe’s failure to heed the warning by the Trump administration to not get too dependent on Russia for vital energy supplies could now see their supplies cut off.

Europe’s over-reliance on wind and solar and shutting down oil and gas production fields and non-greenhouse gas emitting nuclear power plants, have put Europe in a dangerous and weakened state. They are now heavily dependent on Russia for natural gas and satellite states like Belarus that control pipelines look silly from a security standpoint. The U.S. is warning Europe that Russia is planning to invade Ukraine, while Putin lackey Belarusian President Alexander Lukashenko says that due to a border crisis over what it sees as a manufactured migration crisis with Poland, “We are heating Europe, they are still threatening us that they will close the border. And if we shut off natural gas there? Therefore, I would recommend that the Polish leadership, Lithuanians and other headless people think before speaking,” Lukashenko said. Oh, sure Russian President Vladimir Putin is promising Europe more supplies. Must be difficult planning an invasion while trying to supply Europe with desperately needed gas supply.

The control of energy supply has always been essential for national security and, God forbid, war. When you get leadership that suggests, as the Pentagon did recently that, “increasing temperatures; changing precipitation patterns; and more frequent, intense and unpredictable extreme weather conditions caused by climate change are exacerbating existing risks for the U.S.” I would agree there are existing risks to Europe and the U.S. from counties like Russia and Belarus as they use their fossil fuel for dominance and as a potential weapon of war.

In the meantime, back on the oil ranch, oil prices are choppy and weak as traders prepare for what the Biden administration might attempt to do to bring down prices. The Biden administration is getting desperate because their energy policies have driven up the cost of oil and gas, which is increasing overall inflation, not to mention their policies of printing more money and stimulus checks.

According to sources, the reason they have not acted as of yet is there is no agreement in the administration as to what they should do. An SPR release as most experts already know will fail. As have been written before, release from the reserve will only serve to increase demand, it will artificially lower prices in a market where the demand is insatiable and fundamentally undersupplied. China tried to release from their reserve, and they did lower prices for a short period but now they have to refill their coffers and they’re paying a much higher price than they would have had to pay had they not tried to intervene in prices. Besides that, OPEC would more than likely respond with a production cut to match any release from the reserve.

Number 2, a ban on U.S. oil exports would also fail. The U.S. produces light oil that is better suited for foreign refineries. If they ban U.S. oil exports, it will only serve to make U.S. production fall. Oil fields will have to be shut because there will be nowhere to run the oil. Most U.S. refineries can’t run light oil. It would lead to layoffs which might be ok with the Biden administration as they are rooting for the bankruptcy of the US oil and gas industry away.

To lower the price of oil what I would do is send a message to OPEC that we were going to reinvigorate our U.S. oil, gas and shale industry. We should tell them that we’re going after their market share. Oil and gas revenue seems to be the only thing that Russia and OPEC understand. We should make it a national priority to stand up to OPEC plus Russia by producing more oil and gas. The U.S. oil and gas producers are the cleanest in the world and the only way that the U.S. can do a transition from these fuels without putting our economy and our national security at risk is with American workers. Until we have viable alternatives for oil and gas we should continue to be the world’s leader in oil and gas.

OPEC lowered their global oil demand estimate, which means that they will be reluctant to raise oil output. OPEC said global oil demand would grow by 5.7 million barrels a day this year, 160,000 barrels a day less than it expected last month. OPEC reports that demand for oil in 2021 to total 96.4 million barrels a day.

Oil is in correction mode and the first key support is the psychologically important $80.00 per barrel area. The second of course is the Bolinger ban which, after yesterday’s weakness, moves down a stitch. The fear is greater than the reality of what the Biden administration can do to bring down oil and gas prices. They can’t even decide among themselves what to do and whatever they do, from what we are hearing, isn’t going to have a long-term effect. Use the weakness in both oil and natural gas as an opportunity to hedge. It may be your last best chance, to steal a quote from the COP 26 conference, that thankfully is ending.

Gold Futures Daily Chart.
Gold Futures Daily Chart.

CHART OF THE DAY: A REAL GOLD RUSH? Gold futures (/GC—candlesticks) are working on a long-term breakout. Looking at a multi-year weekly chart, gold prices have broken above a diagonal resistance level. Data Sources: ICE (NYSE:ICE), S&P Dow Jones Indices. Chart source: The thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Batteries Included: Batteries for EV cars are probably as important as pick-axes were to the gold rush miners. According to Bloomberg, EV batteries account for about 30% of a vehicle’s price. The standard for EV cars is Lithium-ion batteries.

Companies like Lithium Americas (NYSE:LAC), which announces earnings on Tuesday, Gangeng Lithium, and Quantumscape (NYSE:QS) are suppliers for EVs. Panasonic (OTC:PCRFY) creates batteries for Tesla (NASDAQ:TSLA) and Toyota. Romeo Power (NYSE:RMO) creates batteries for big trucks, buses, construction equipment—RMO announces earnings on Monday.

Charge! All of those batteries need to be charged and last week’s infrastructure bill set money aside for EV charging stations. Evgo (NASDAQ:EVGO), ChargePoint (NYSE:CHPT) and Blink Charging (NASDAQ:BLNK) rallied on the infrastructure news. Some investors appear to see them as potential beneficiaries of infrastructure spending.

Parts Are Parts: EV companies make cars, but they don’t usually make all the parts that come in the car. Instead, they buy parts from other companies to use in their vehicles. Obviously, an electric car is made up of electronics and Aptiv (NYSE:APTV), which beat earnings estimates last week, Amphenol (NYSE:APH), and General Electric (NYSE:GE) create electrical components for vehicles around the globe.

Like any other sophisticated electronic device, EVs need semiconductors. Nvidia (NASDAQ:NVDA) has a division just for auto-making and autonomous driving vehicles. Additionally, it supplies chips to EV makers too. On Tuesday, Nvidia announced a new virtual driving assistant for autonomous electric cars. Intel (NASDAQ:INTC) and NXP Semiconductor (NASDAQ:NXPI) are also among the largest semiconductor providers for EVs.

Like any gold rush, EVs will likely have its winners and losers. But it’s important to take a minute and step back to ensure you don’t get gold fever.

Disclaimer: TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

The Energy Report: The Energy Weapon
 

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The Energy Report: The Energy Weapon

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Comments (4)
Paul Akre
Paul Akre Nov 15, 2021 9:27AM ET
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Thoughtful, thorough, logical, well constructed. Phil Flynn for Energy Secretary… 👍
Dimitrj Kashtan
Dimitrj Kashtan Nov 13, 2021 12:35PM ET
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Good analysis! Increasing US and Canada oil/gas production would reduce overall inflation pressure across all sectors
Yuge Profits
Yuge Profits Nov 12, 2021 11:10PM ET
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Great article. Natural gas price keeps going down. How low or how high will it go? where is the buy atea?
Lubosi Maboshe
Lubosi Maboshe Nov 12, 2021 2:11PM ET
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You can see the fear in investors over this oil crisis in America its so silly that the conference has an agenda to reduce oil.Do  they know that this will cost jobs? where are the workers in the oil industry going to find work? what of the billions of cars around? that need fuel. not to mention trucks that deliver the food to our market.This meeting is driving oil prices down the drain and notice that the US economy is tanking as well.Will the market save the US jobs? we closing the market on a sad note.
By designe
Series3bydesign Nov 12, 2021 2:11PM ET
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Kind of counter to the idea that high price of oil stymies the economy by reducing discretionary consumer spending(which makes the economy turn), resulting in them spending more on essentials impacted by high oil price.So low oil prices means the economy will be screwed because consumers wont have to spend alot on products impacted by the price of oil.
 
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