Excellent Report by Phil Flynn on OIL/NG this summer... I have know Phil since 2010. If he was a CR stock holder (he is not) he would disucuss many things like we do on this board. This is the best BB i am a part of . He and I have been talking under investment in NG since early 2019 - and how it woould play out if shale got wiped out on the associate gas side if OPEC made shale unreliable casue of price instablility (as it did due to COVID). We didn't talkor predict HOW the crisis would happen; just that it WOULD happen. It gave me a lot of confidence to buy CR, BIR, CPG, and SDE when the ..... was hitting the fan last March/April. No one can replace your own DD; but Phil has helped crystalize good ideas for me. Phil's daily news letter is free if you wnat to sign up. Not promoting Phil - Just another source of DD in the lonely retail investing world while we try to build wealth for ourselves, kids and grandkids. GLTA - Still Long CR after this great run. TD12
The Phil Flynn Energy Report for Wednesday, June 23rd, 2021
Energy Unplugged
Don't plug those electric cars in! In Texas they're taking over your smart thermostats to lower the temperature in your house and in California they're begging you to stop charging your electronic vehicles during peak energy hour. Earlier this week all the talk was about how Texas energy companies took over everyone's smart thermostats and turn down their air conditioners. Now they are going after electric cars which according to the Biden administration, is essential if we're going to save the planet. The great energy transition and dreams of an electronic future are getting hit with a dose of reality as the nations energy and infrastructure is going to have to be transformed to be able to handle the increase in demand. The demand increase that's going to be created by electronic vehicles and the green energy grid that is being rushed by the Biden administration.
The goal of getting more people to drive electric cars and eventually replace the internal combustion engine is going to face significant challenges not only with the power grid but the ability to produce all the batteries that are going to be needed and the rare earth minerals that are going to be needed to build these cars. They also have to account for the strip-mining of a lot of land to come up with all the lithium cobalt in other rare earth minerals that are going to be needed to create millions of electronic vehicles.
The power grid is going to be under a lot of pressure because of the increase in electricity usage. The Biden administration wants the power grid to be powered by renewable resources such as wind and solar. But if you look at what's happening in Texas and if you look at what's happening in California, what we see during times of peak demand, alternative sources of energy fail. These sources of energy fail the number of solar farms that you're going to have to build to power the grid and to power electronic vehicles. This will take so much land that is probably going to impact our ability to produce food. Instead of amber waves of grain, we will see reflections of solar panels from sea to shining sea.
We also have to deal with the fact that there is a lot of solar panels that are going to have to be replaced as they have used up useful life faster than people thought about. We're already starting to see a recycling issue with old solar panels and we have to remember that there are a lot of dangerous chemicals that go into the production of solar panels. We have already talked about the inability to recycle all the wind turbine blades that are ending up in landfills so the new energy transition is not only going to provide us with a world where the supplies of energy are gonna be a lot less reliable but we're also going to live in the world where energy is going to be ridiculously expensive.
I think we're going to have a great fossil-fuel reactor re-awakening. That re-awakening may come sooner rather than later especially if you look at the price increases we are seeing in the crude oil market. Crude oil is up .50 after a very bullish American Petroleum Institute supply report as well as the fact that we're seeing the impact of massive underinvestment on the oil and gas side. That is mainly due to the re-opening of the economy is coming back a lot faster than most people think and it is also one of the reasons why the Federal Reserve underestimated inflation.
Yesterday, Fed chairman Jerome Powell said that he believed that inflation was still transitory but acknowledged that it could be sticking around in certain sectors. Fed chairman Powell said that the inflation that he is seeing mainly revolves around the re-opening of the economy so he believes that it is transitory and in some cases that's probably correct. But in the oil sector we're seeing something much more substantial. This is something that we haven't seen probably since the bottom in 1999 in crude oil and that is a path where global demand is outstripping increasing production of oil. The globe has fallen behind the oil curve. With the global energy transition in place, it is going to only exasperate the situation. Alternative fuels are not coming on fast enough to meet the growing demand and because we haven't invested in the oil and gas industry, we're not going to be able to meet the demand in the next couple of months and years.
The energy report has for a very long time has been warning about this super cycle coming in the global oil market and now we're seeing it happen. When we started talking about this, we were one of the few that was realizing the problems and the way that the market was very complacent about the supply of oil. Most people just assumed that the shale revolution was going to be able to feed global demand even if shell producers were losing money.
The American Petroleum Institute reported a massive drop of 7.199 million barrels in crude oil supply last week. That came as we saw a 2.550 million barrel drop in Cushing, OK. The big drops in Cushing also reflect the fact that U.S. oil producers are not producing as much well as they have in the past. It also signals that we're becoming more reliant on imports from overseas.
THE API also reported that distillate inventories increase by 992,000 barrels and they reported the gasoline supplies rose by 959,000 barrels. Those numbers reflect that the US refiners are ramping up activity.
The Energy Information Administration releases its version of the report today at 9:38 AM central time. We believe that the EIA numbers will reflect what we are seeing in the API. It is going to suggest that we're seeing increasing demand for gasoline. It is also going to suggest that we're seeing an increase in refinery runs. Yet it also is going to show that we are becoming more dependent on oil imports from places like OPEC and Russia.
Natural gas prices are showing some extreme volatility as hot temperatures come back. The production of natural gas is down. The global demand for natural gas is extremely high right now. That is going to continue to support these prices. With natural gas as with the products, we think there are still some significant upside risks in the weeks and months ahead. Make sure that if you have any exposure to any of these products, get hedge or continue to be hedged.
Late breaking headline from Bloomberg News that says Russia fired warning shots near a British ship in the Black Sea. Reports say that the ruble gained versus the dollar after the Black sea incident. Stay tune as the geo-political landscape is getting more interesting, to say the least.
There are reports of progress in the Iranian nuclear talks. The oil market does not seem convinced. It looks like Iranian barrels will be sitting in tankers a lot longer.