The Phil Flynn Energy Report
Don't plug those electric cars in! In Texas, they're taking over your smart thermostats to lower the temperature in your house; in California, they're begging you to stop charging your electric vehicles during peak energy hour.
Earlier this week, all the talk was about how Texas energy companies took over their customers’ smart thermostats and turned down their air conditioners. Now they’re going after electric cars, which, according to the Biden administration, are essential if we're going to save the planet.
The great energy transition and dreams of an electric future are getting hit with a dose of reality as people begin to realize that the nation's energy and infrastructure will have to be transformed in order to handle the increase in demand. The demand increase that's going to be created by electric vehicles and the green energy grid that’s being rushed by the Biden administration.
If the goal is to get more people driving electric cars, we’re going to face significant challenges. These challenges won’t only be with the power grid, but also with the ability— or lack thereof— to produce all of the batteries to power these cars. We need to account for the strip-mining of a lot of land in order to come up with all the lithium cobalt and 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 energy. However, if you look at what's happening in Texas and California, we often see alternative sources of energy fail during times of peak demand. Imagine the number of solar farms that we're going to have to build to support the power grid.
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 those panels. We’ve also already talked about the inability to recycle all of the wind turbine blades that are ending up in landfills.
I think we're going to have a great fossil fuel reactor reawakening. This reawakening may come sooner rather than later, especially if you look at the price increases we’re seeing in the crude oil market.
Crude oil is up .50 after a very bullish American Petroleum Institute (API) supply report, as well as the fact that we're seeing the impact of massive underinvestment on the oil and gas side. That’s mainly because the reopening of the economy has been a lot faster than most people may have thought, and it’s also one of the reasons why the Federal Reserve underestimated inflation.
Yesterday, Fed Chairman Jerome Powell said that he believed inflation was still transitory, but acknowledged that it could be sticking around in certain sectors. Powell said that the inflation that he’s seeing mainly revolves around the reopening of the economy, so he believes that it’s transitory— in some cases, that's probably correct. In the oil sector, we're seeing something much more substantial.
This is something that we haven't seen in awhile, probably since the 1999 bottom in crude oil. The globe has fallen behind the oil curve; with the global energy transition in place, it’s only going to exacerbate 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, even the next couple of years.
For a very long time, The Energy Report has been warning about this supercycle coming within the global oil market, and now we're seeing it happen. When we started talking about this, we were one of the few that were realizing the problems and the way that the market had been 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 API 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 aren’t producing as much oil 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 increased by 992,000 barrels and that gasoline supplies rose by 959,000 barrels. Those numbers reflect that U.S. refiners are ramping up activity.
The Energy Information Administration (EIA) released its version of the report today at 9:30 a.m. CT.
Natural gas prices are showing some extreme volatility as hot temperatures return. The production of natural gas is down and the global demand for natural gas is extremely high right now. That’s going to continue to support these prices. As with the products, we think there are still some significant upside risks in the weeks and months ahead for natural gas. Make sure that if you have any exposure to any of these products, get hedged or continue to be hedged.
A late breaking headline from Reuters 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 tuned: the geopolitical landscape is getting more interesting, to say the least.
There are also reports of progress on the Iranian nuclear talks, but the oil market doesn’t seem convinced. It looks like Iranian barrels will be sitting in tankers for a while.
Don’t miss out on my wildly popular trade levels on all major markets, as well as special subscriber-only updates. Call me at 888-264-5665 or email me at firstname.lastname@example.org.