The Energy Report: Behind the Curve
We talk a lot about being behind the curve! The market continues to lament the Federal Reserve’s lag on the curve. The biggest problem is that oil and gas production in the United States has lagged far behind the curve, and that is becoming evident as we face a winter of discontent in Europe and tight supplies in the United States. United. supplies are 3% below the five-year average. Gasoline supplies are 9% below average and distillate supplies are at a dangerously low level, 21% below the five-year average.
The Biden administration wonders how OPEC could let her down. The Biden administration decided to make the U.S. oil and gas industry a bad guy and figured OPEC would be its ticket to energy price security. They miscalculated enormously, and now the United States, like Europe, is likely to see its prices rise sharply this winter. The United States should have been the anchor of global energy markets that could have kept things more copacetic had it been allowed to do its job and not come under attack from the Biden administration.
We need look no further than the short-sighted policies of killing the Keystone pipeline, drilling moratoriums and ESG regulations and the fact that we have seen the lowest number of federal drilling leases issued since the era of Harry Truman. Remember all those people saying that eliminating the Keystone pipeline would have no impact on gas prices or oil prices? They need to rethink that. It is obvious that the US energy industry must be the global saviour, but it is difficult to do so under this administration. How can you make major investments when the industry can’t trust the Biden administration?
On the one hand, the Biden administration is doing everything it can to demonize the oil companies, calling them war profiteers and accusing them of defrauding the public while regulating them and now blaming them for not being a company. inventories. The Biden administration cannot be trusted when it comes to dealing with American energy. If we are ever going to exit supply, it will take a massive effort by U.S. energy producers to fill the void in the global market and reduce the geopolitical and economic risk of becoming more dependent on OPEC and Russia. .
Yet how can this industry trust this administration? They cannot be trusted when it comes to oil and gas when they openly discourage investment in pipelines and drilling projects and propose oppressive taxes and excessive regulations on this industry. Promoting ESG, which does more than anything to discourage investment in the United States. Biden’s policies mean we face not just a winter of tight supply, but possibly decades of tight supply and steeply higher prices.
There is now talk that the Biden administration could start releasing more oil from the Strategic Petroleum Reserve, which at this point is already at dangerously low levels. Continued releases from the Strategic Reserve may result in long-term damage to Salt Caverns and some of these caverns may be unusable if we continue to reduce inventory. Currently, the Strategic Petroleum Reserve cannot respond to a major emergency supply disruption. They can’t do more than they do. Now the Biden administration, while promising to release more oil from the reserve, knows it’s going to have to buy it back, and we know it’s going to have to buy it back at prices higher than what it sold. . for. Yet the Strategic Petroleum Reserve is not and should not be used as a tool to try to control prices. The strategic oil reserve is not large enough to even attempt such an enterprise.
The Biden administration must regain the trust of the oil and gas industry. They also need to win back the trust of the investment world as a whole to make sure they don’t randomly cancel oil and gas projects like they did the Keystone pipeline. The Biden administration must admit that its rush to get rid of fossil fuels is backfiring and that it is imperative to rebuild trust not just with industry but with America as a whole. BP (NYSE:) says for its part that it will target the North Sea in the US oil basins to try to increase short-term supplies of oil and gas production.
Diesel prices rose yesterday not only because supplies are tight, but because of the strike at French refineries. This parabolic move to end the distillate contract is something we’re going to see a lot more of this winter. In the short term, this market is largely overbought but we must be careful because volatility will remain high and the risk of upside is still significant.