While oil prices fight short term battles over the impact of rising interest rates and a potential recession, they are ignoring larger issues surrounding a growing structural shortage that is becoming a major threat to the global economy. There are more warnings about a structural shortage in the global oil market that has been caused in large part by short-sighted discouragement in fossil fuel investment and unless the world acts and changes direction, we will face extreme price swings as the market becomes more undersupplied.
The latest warning about this comes from OPEC Secretary General Haitham Al Ghais who warns that global oil demand is on track to rise by 23% until 2045. He warns that if the world is going to meet that demand, the global oil industry will need to invest 12.1 trillion dollars, something that is not happening. While long term projections are subject to change, the complacency about the track we are on means we will perhaps have to face shortages or extremely high prices to get the world to act. This comes as investment in alternative energy, which the International Energy Agency (IEA) said is on course to rise to USD 1.7 trillion in 2023, with solar set to eclipse oil production for the first time. At the same time, the commitment to energy investment in green energy is faltering. Mike Shedlock at MISH Talk reported that The European Commission put a cost on its green deal estimate. It’s €620 billion. The EC has allocated €82.5 billion. Guess what. This green new deal is largely unfunded. The commission has put a figure on the annual costs of the green deal, a whopping €620bn. The commission itself has only allocated €82.5bn towards this, via the social climate fund. You can add a few euros here and there from various other pots, but this is not going to come close. The point is that extreme government intervention in energy policy is leading to a disaster. Global leaders have been more fixated on energy politics as opposed to energy reality and that is leading to major problems.
Oil today is still trying to maintain its breakout levels. Talk that crude supplies could rise this week as well as the seasonal peak in gasoline demand is weighing on sentiment. Continuing concerns about raising interest rates. Concerns about demand in China are being offset by reports that China plans to offer more stimulus to beef up its real estate sector. India’s oil demand continues to be strong and there are reports this morning that they are seeking to secure more crude oil from Iraq under long term contracts. The demand growth in India is one of the reasons that we’re going to see the global market tighten as their economy continues to grow.
Javier Blas at Bloomberg tweeted:
“Medium sour crude keeps tightening after Saudi Arabia’s unilateral output cut for July and August, and that’s lifting the price of Russian flagship crude Urals significantly. The latest quotes put it about to breach the $60-a-barrel G7 price cap. If that happens it is going to test the EU commitment to the cap and if they fail to pay the price will Russia withhold supply? "
The oil market breakout seems to be just getting underway and there’s still time to buy some long-term options. Diesel supplies are extremely tight and they will get tighter. If Russia does decide to cut back on oil production, the dynamics that were put at bay from rising interest rates and strategic petroleum reserve releases have changed the market. It is starting to realize that we are facing a tight market and that is being priced in as we speak.
Reuters reported that Indonesia’s coast guard said on Tuesday it seized an Iranian-flagged supertanker suspected of involvement in the illegal transshipment of crude oil and vowed to toughen maritime patrols. The MT Arman 114 was carrying 272,569 metric tons of light crude oil, valued at 4.6 trillion rupiah ($304 million), when it was seized last week, the Indonesian authorities said. The Very Large Crude Carrier (VLCC) was suspected of transferring oil to another vessel without a permit on Friday, the Southeast Asian nation’s maritime security agency said.
Extreme heat across big parts of the country is giving natural gas a boost. Janice Dean at Fox News reports that:
“New England is experiencing record breaking floods with rivers cresting at historic levels. Conditions will begin to slowly improve through the day. Strong to severe storms will fire up across the Plains while dangerous heat continues for the Southwest into Texas.”
That heat will boost the gas demand.
OIL Price reports that Spain is feasting on Russian gas. They write:
“Spain’s imports of natural gas from Russia surged in May, accounting for 27.9% of the country’s total natural gas imports. While the country’s imports from Russia climbed, its total natural gas imports dropped by 5.4% year-on-year. The government of Spain has urged importers of liquified natural gas not to sign new contracts with Russian companies."
Good Luck. Warren Buffett does get it and is making big bets on fossil fuels.
Bloomberg reports:
“Berkshire Hathaway (NYSE:BRKa) Energy agreed to buy Dominion Energy Inc.’s stake in a Maryland liquefied natural gas export project for $3.3 billion. The deal will boost the company’s limited partnership ownership of the terminal to 75%, while a unit of Brookfield Infrastructure (NYSE:BIPC) Partners holds the remaining 25%, Warren Buffett’s Berkshire said in a statement Monday."
Bloomberg says that the deal will give Berkshire control of one of just seven operational US facilities that can export LNG at a time when the fuel has assumed an increased economic and geopolitical significance.
Natural gas prices surged in 2022 following the invasion of Ukraine, and US exports of the liquefied form of the fuel helped to sustain Western European economies after Russia cut supplies. Cove Point LNG is contracted on a long-term basis to companies including Tokyo Gas Co Ltd (OTC:TKGSY) and Sumitomo Corp. (TYO:8053). Dominion Energy Inc (NYSE:D) said in a separate statement that it will use the proceeds to repay debt. Dominion, which has been conducting a business review, has said it plans to host an investor day in the third quarter to give an updated strategic and financial outlook.