The Phil Flynn Energy Report
Can You Say Crisis?
The Biden administration has a crisis at the border, but energy traders are probably more focused on the coming energy crisis. The combination of a slow comeback in Gulf oil production after Hurricane Ida and an energy policy by the Biden administration that discourages oil and gas production is creating a situation that’s very bullish for petroleum and natural gas markets. This administration better come to grips with the fact that in every major category of winter heating fuels the U.S. is below the 5-year average and we could see huge upside spikes in prices this winter.
We warned about propane inventories yesterday. They are 21% below the 5-year average and we may see shortages of supplies. When winter comes rolling in, there's going to be a huge competition for pipeline space. Refiners desperately need butane to add to their winter blends of gasoline versus propane buyers who will need supply to sell to distributors. However it plays out, the one thing we know for sure is that it's going to be very expensive.
Natural gas prices have been at record highs in Europe and are supporting natural gas prices here at home. With supplies so very tight, trade groups are calling for the U.S. to ban LNG exports. The EIA reported that working gas in storage was 3,082 Bcf as of Friday, September 17, 2021, according to estimates. This represents a net increase of 76 Bcf from the previous week. Stocks were 589 Bcf less than last year at this time and 229 Bcf below the 5-year average of 3,311 Bcf. At 3,082 Bcf, the total working gas is within the 5-year historical range. That report isn’t very comforting, especially when you put it into the context of global supplies of natural gas and gasoline for that matter.
Oil giant BP said on Thursday it was having to temporarily close some petrol filling stations in Britain because of a lack of truck drivers, hours after a junior minister cautioned the public not to panic buy amid fears of food shortages.
Small Business Minister Paul Scully said Britain was not heading back into a 1970s-style “winter of discontent” of strikes and power shortages amid widespread problems caused by supply chain issues.
Soaring wholesale European natural gas prices have sent shockwaves through energy, chemicals and steel producers, and strained supply chains which were already creaking due to insufficient labour and the tumult of Brexit.
After gas prices triggered a carbon dioxide shortage, Britain was forced to extend emergency state support to avert a shortage of poultry and meat.
Nothing to see here in the United States right? Forget about that toilet paper shortage. Costco said supply chains are just going to be just fine. Who said the supercycle in commodities is dead?
A few years back when we started talking about the coming shortage in oil and natural gas, prices we gave were kind of laughed at. We talked about the underinvestment in the energy sector and the lack of capital spending that was going to create a huge spike in prices. Most analysts dismissed what we were saying and that the Covid-19 situation probably exasperated the situation. But the supercycle was actually born in the price collapse prior to that.
What's going to make this situation worse is the sheer panic being shown by the Biden administration regarding climate change. They declared to the UN that the world is in a "code red” situation and that there's no time to think or plan. The world must spend money on whatever green project they choose and that’s going to create the potential for one of the biggest price spikes we've seen in energy since 2008. Energy prices will likely be reminiscent of the 1970s.
The Biden administration's energy policy is going to create stagflation, something we also had back in the ‘70s, by creating an environment where high energy prices reduce economic growth, but at the same time cost everyone a lot of money. It was this situation that created the economic term "the misery index" and the misery index is going to come back again under the Biden administration.
Oil and gas hedgers need to be hedged. We've been warning for months about the supply situation and it's happening now. Perhaps it's happening a little bit sooner than some people had anticipated because of Hurricane Ida, but make no mistake about it, we’ve been on a path of increasing demand and tightening supplies for some time.
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