prices are back above $86.00 a barrel and hit their highest level since October 2014. The market is in breakout mode as oil inventories continue to fall and geopolitical tensions continue to rise . Ukraine and the Fed are pushing us higher. While on the one hand the Biden administration says it has no plans to put US troops in Ukraine, it has put more troops on high alert. Other European nations are increasing their troop presence in Eastern Europe in an attempt to impress on Vladimir Putin that if he invades Ukraine, there could be serious consequences. Yet the real consequence for energy prices is supply in Europe as well as a risk to the global economy from a potential energy price shock.
The AP reports that Russia warned on Wednesday that it would retaliate quickly if the United States and its allies rejected its security demands and continued “aggressive” policies, increasing pressure on the West as Moscow planned to invade Ukraine.
One of these aggressive policies could include cutting oil and gas supplies to Europe and the rest of the world. Germany, in an effort to become more climate-friendly and due to fears over nuclear power, shut down its nuclear power plants and, in what appears to be a fateful move, rejected appeals from the Trump administration not to depend too much on Russia for Provisions. Germany seems to ignore the fact that Russia has cut off supplies to Eastern Europe before, and even this winter German politicians have accused Russia of withholding supplies.
Bloomberg News reported that the cost of pollution in Europe hit a nearly seven-week high amid fears a potential conflict in Ukraine could drive up gas prices on the continent, making fuels dirtier cheaper to burn. European Union emissions permits are rising to a record high set in December as higher gas prices drive a switch to more carbon-intensive fuels such as coal and lignite. Fears over expensive gas may increase demand for pollution permits, as producers see dirtier fuels as more profitable.
Inspired Energy said in a note:
“Carbon support was born in part from the impact of the regional gas supply crisis. These large gains led to unfavorable fuel switching dynamics. »
The company also added that coal should be cheaper to cover any shortfall in demand until December 2023. Carbon permits rose 2.6% on Wednesday morning to 89.68 euros ($101.19) a day. tonne. This is the highest since December 9.
Russia denied holding back the supply saying it was sending all the supplies that had been contracted. Yet, at the same time, they are using it to try to get Germany and other European countries to enter into long-term contracts at very high prices. The Biden administration continues to say it wants to use the Nord Stream gas pipeline as a bargaining tool to stop Putin from invading Ukraine. Russia also says it will not use its energy supplies as a political weapon, but that could change overnight based on these comments.
The Biden administration, for its part, may be beginning to understand what the real reason for the Strategic Petroleum Reserve (SPR) is. The Biden administration brought in the SPR to try to lower gas prices and boost their approval ratings, and it failed on both counts.
On the natural gas side, it will be more difficult to come to the rescue. Bloomberg News reported that the United States is ready to try to cover significant parts of a possible natural gas shortage and is ready to engage with other LNG suppliers to provide flexibility. The Biden administration says it wants to make sure it has alternative supplies of natural gas, warning Russia that weaponizing the energy supply would hurt Russia. Add, as I have already said, that Russia has already armed supplies.
Amena Bakr, deputy bureau chief and chief OPEC correspondent at Energyintel, reports that Qatar is unlikely to help Europe with gas supplies. They said no one asked! Biden! Pick up the phone!
Then, of course, there is the supply situation in the United States. The American Petroleum Institute (API) said crude supplies in the United States have fallen further. API reported: “U.S. crude oil supplies fell 872,000 barrels. The decline was a string that continued for weeks and raises eyebrows because normally this is the time of year when crude oil supply increases. Some take solace in the fact that gasoline supplies increased by 2.4 million barrels last week, but gasoline supplies are still below normal for this time of year. That’s even though we’ve seen a record streak of gasoline supply increases.
Distillate inventories have fallen by 2.2 million barrels and cold weather is gripping the country. Right now, one would assume that this supply number would continue to drop in the coming weeks. The bottom line here is that we see a very tight market for the oil side of the sector. This is a situation we have seen coming for some time. We told you a year ago that the policies of the Biden administration would lead to a shortage of supplies, and it has come true.
The Biden administration really doesn’t understand how the energy industry works. They need to understand that it takes continued investment in the fossil fuel industry to keep the US supply growing. US producers are drilling more, but their productivity per well is declining. It will take massive investment to keep the United States a major oil producer.
Yet that investment continues to be thwarted by the Biden administration, which is trying to demonize investment in fossil fuel companies. The Biden administration has used its heavy-handed tactics against US banks and corporations to stop doing business with US oil and gas producers. They pressured endowments to stop investing in American oil and gas, and while they may think they’re doing it to save the planet, they’ll kill the economy well before the planet dies.
While everyone agrees there needs to be an energy transition, the Biden administration’s short-sighted approach poses real issues of potential economic risks as well as geopolitical risks like the one playing out at the border. Ukrainian. This is why we have urged oil and gas users and those with price exposure to hedge against higher prices. We have repeatedly said that many people see the need to hedge against the risk of rising prices starting this year and well before.
Oil prices will also be of interest to what society is doing today. The Fed is expected to signal an interest rate hike in March. The big question, of course, concerns the dot chart and whether the Fed will increase the amount of interest rate hikes it plans this year. We have received mixed signals from various Fed speakers over the past few weeks. Still, the Fed needs to thread the needle to slow inflation without killing the economy. This is going to be very difficult, especially with the global oil shortage and the potential risk of a supply cut due to the Russian-Ukrainian conflict.
The natural gas market has understood its cold. Natural gas prices are beginning to rise as temperatures drop well below freezing in many parts of the country. A winter storm expected to hit the northeast could also limit natural gas production. Just a few weeks ago, many were downplaying the risk of a surge in winter demand. They may have to recalculate their year-end storage numbers.