Oil prices are back on the rise as a global supply shortfall is becoming more evident and the International Energy Agency (IEA) is once again claiming that the web can be okay if we just stop investing in fossil fuels. Of course, the IEA’s past predictions of supply and demand have been way off and might be one reason global policymakers were led astray.
Based on their data right now If your base energy policies are based upon IEA predictions, it’s no wonder the market is short of supply. OPEC puts the global shortfall at 32 million barrels a day. In the meantime, oil prices are having their biggest quarterly price increase since early 2022 as the world’s poor and middle class gently weeps.
In the US the shortfall is being felt at the Cushing Oklahoma delivery point. Cushing is still draining after the American Petroleum Institute (API) reported 828,000 barrels. That offset the fact that overall crude supply has a 1.586-million-barrel crude build.
Products also fell with distillates falling by 1.698 million barrels and gasoline by 70,000 barrels. Regardless The IEA was right about one thing when they said that a “significant supply shortfall” lies ahead, so why not make it worse by doubling down on the need for the world to stop investing in Fossil Fuel?
The IEA is claiming that the global demand for oil, natural gas, and coal is likely to peak by 2030 – an “encouraging” development but “not nearly enough” to limit the rise in global temperatures to 1.5 degrees Celsius.
The IEA says that:
"Keeping alive the goal of limiting global warming to 1.5 °C requires the world to come together quickly. The good news is we know what we need to do – and how to do it. Our 2023 Net Zero Roadmap, based on the latest data and analysis, shows a path forward,” said IEA Executive Director Fatih Birol. “But we also have a very clear message: Strong international cooperation is crucial to success. Governments need to separate climate from geopolitics, given the scale of the challenge at hand.”
I would argue that the IEA has been the agency that has politicized energy and has made its supply and demand projections to make people believe that we can get rid of the internal combustion engine in a few years.
The IEA writes that “In the updated net-zero scenario, a huge policy-driven ramping up of clean energy capacity drives fossil fuel demand 25% lower by 2030, reducing emissions by 35% compared with the all-time high recorded in 2022. By 2050, fossil fuel demand falls by 80%. As a result, no new long-lead-time upstream oil and gas projects are needed. Neither are new coal mines, mine extensions, or new unabated coal plants. Nonetheless, continued investment is required in some existing oil and gas assets and already approved projects”
This is a recipe for economic disaster. Oil prices are saying that the disaster is already here. The steepening of the ping of backward nations in the market is suggesting a coming oil price spike that will throw the world into a recession. The problem is that the spike may be months away.
As far as the Fed instead of being too aggressive in raising rates, it might be better to allow the oil shortage to do their job. If you have the double barrel impact of a coming oil price spike after a historic pace of interest rate increases you might just cause a much larger financial crisis across the economy.
The Fed needs to be smart and let the oil spike play out before they make the slowdown much worse than it has to be.
From a technical viewpoint. Oil after breaching the support on the downside Monday on late volume and then a close above $90 negated the formation. A retest of major resistance at 9300. Monthly is at 9450. Longer term if that is taken out oil should test longer term to $111.
Natural Gas is meandering but according to the Wall Street Journal closed slightly higher for a third consecutive session, ending up 0.6% at $2.656/mmBtu. Today’s closing price leaves the front-month contract for October delivery right around the mid-point of recent ranges between $2.600 and $2.700 ahead of its expiration tomorrow. The more active, November delivery contract fell by 2.1% today to end at $2.845/MMMBtu, putting the two contracts closer together ahead of the handoff. The November contract becomes the front month starting on Thursday. Analysts attribute the recent rangebound pricing to weather patterns becoming more predictable into the fall, and little in the way of hurricanes to disrupt the market’s supply-and-demand dynamics.
You must know that energy policy is going to be very important in the second Republican Debate that will be hosted by Fox Business Network and will take place at the Ronald Reagan Presidential Library in Simi Valley, California.
The candidates better be in their A-game with great moderators Stuart Varny Dana Perino and UNIVISION’s Ilia Calderón who I am sure will make them cover a lot more than just business!
Then after the debate, I will be sharing my take and analysis on the highlights and lowlights of the winners and losers on the “Rich Valdes Radio Show” which is heard on 300 stations nationwide on the Westwood One radio network. Just Ask Alexa!