Energy report: Fed signals strong demand for oil

The stock market panicked, but is a more aggressive Fed signaling a boiling economy and stronger demand for oil by default? The answer is yes!

Global demand for oil is exceeding expectations, even with cases of the omicron variant sweeping the world. It seems like when a pocket of demand slows down, there’s another place in the world that makes up for it. sold in sympathy with the stock market, and he did not get help from the weekly which showed massive accumulations of gasoline and distillate, but at the end of the day when you browse all the data and look at the four week moving averages, you realize that we are going to be facing an extremely tight oil market in the coming months. It’s something we’ve been talking about for a long time, and that’s why we tell people to cover up all year round.

We think we could get another higher wave at the dawn of the first quarter of the year. On top of that, the outbreak of violence in Kazakhstan due to rising fuel prices may be a warning sign for other parts of the globe. Europe faces record high energy prices and global stability issues could be real as the commodities super-cycle is just starting to heat up.

The New York Times reported that paratroopers from a Russian-led military alliance began arriving in Kazakhstan on Thursday to restore order after a night of protests in the Central Asian country turned violent. Police reported dozens of anti-government protesters were killed and hundreds injured. Foreign soldiers were dispatched after the town hall burned down in Almaty, the country’s largest city. Police opened fire on the demonstrators.

The effort to quell the unrest, described as a temporary peacekeeping mission by the military alliance, will be time-limited and will aim to protect government buildings and military objects, the group said in a statement.

This is the first time in the history of the alliance, which is the Russian version of NATO, that its protection clause is invoked. According to the Times, the statement did not specify how many troops would be mobilized across Armenia.

Overnight reports show that OPEC’s oil production rose in December, led by Saudi Arabia, but fell in Libya and Nigeria. OPEC’s production increased by 70,000 barrels per day to 27.8 million barrels per day, according to the report. Although the increase was pleasant, they are still far from their quota.

A lot of people laughed at the commodities super-cycle last year when we had a slight correction in prices, but I think it becomes more evident when you look at the global supply chain, and you look at this. is happening with regards to underinvestment in oil and gas. People are starting to realize that the market is going to be under-supplied.

For energy, one of the main drivers of inflation, the problem has become political. The rush for alternative energy, the demonization of investment and fossil fuels have all conspired to create a situation where the supply response to growing demand has fallen far behind. The Federal Reserve knows it is falling behind.

This is why people think the Fed minutes raise the possibility of shrinking the balance sheet much faster than previously thought and fear that if inflation does not cool down we could see interest rates rise. , potentially, five times this year. At least that’s what some people expect. And while a more aggressive Fed might see a stronger dollar and some slowdown in investment, it won’t be a killer of the oil bull market. The Fed will no longer produce oil, and that is the key. Even with the Fed becoming more aggressive, demand for oil will remain strong and will most likely exceed supply. The Fed cannot print barrels of oil.

In a higher interest rate environment, redirect some of your money from growth stocks to energy stocks – old-fashioned oil and gas stocks like the big Exxon Mobil (NYSE :), ConocoPhillips (NYSE 🙂 , Shell (NYSE :), Halliburton (NYSE :), and commodities stocks will be the place to be in this New Year.

As we said before, we didn’t expect oil to hit $ 100.00 in 2021 and believe it or not, even though we have been one of the most consistent oil bulls in the market over the course of time. over the past two years, we think it’s unlikely that we will hit $ 100 a barrel in 2022, unless there is a major event. We believe oil could hit close to $ 95 a barrel in 2022. One reason is that higher prices and more aggressive feeding could reduce demand a bit and keep prices somewhat in check.

Last year we were one of the few to predict the next gasoline price hike. Not only did we expect gasoline prices to rise due to the reopening of the economy and reduced refining capacity, but we understand the nuances Biden’s energy policy would have on the price of gasoline. gasoline at the pump. Moratoriums on drilling and the cancellation of the Keystone pipeline sent a signal to investors that their money was not welcome in the energy space. Oil producers have made decisions based on fear of the Biden administration’s regulations.

The Biden administration says drilling permits have increased under their administration. The reality is that most of those permits were obtained because they knew Biden would cut them off soon. There was a rush to get permits before it was too late. So the buyers who got these permits did so to get in before it was too late, and not for thoughtful business reasons. They feared the government would crack down. It is not the most efficient way for these companies to obtain permits. It was an act of desperation to stay one step ahead of possible government shutdowns.

Biden’s weak attempts to bring gasoline prices down with a release of the Strategic Oil Reserve backfired. Most of that oil has gone to places like South Korea and China and has done little to help American refiners produce more gasoline. Prices at the pump have come down, but mainly due to fears over omicron variants. We saw a big drop in demand for gasoline in last week’s Energy Information Administration report, but this is questionable because last week we saw a big increase. A lot of those gasoline numbers are discounted as they were more than likely year-end adjustments, and we believe gasoline demand will continue to exceed expectations.

Biden’s return to the Paris climate agreement is also a signal for U.S. energy investors to stay away. His love for electric cars doesn’t match reality. This administration has not fully taken into account the environmental impact of battery-powered electric cars. The massive electrification of the fleet is not ready for prime time.

Everyone knows that electric cars are going to be a big part of the equation, but they have their problems. The autonomy of these vehicles is not conducive to economic growth. When you replace an efficient engine with an inefficient one, you are replacing the efficiency of the economy with inefficiency. It might be OK if you saw huge economic benefits in switching from gasoline-powered cars to electric, but this is highly debatable, and it is true that the country’s switch to all-electric will or will not have the benefits for the country. environment that the Biden administration is hoping for.

It has been very well documented that you would have to drive an electric car almost 120,000 miles just to break even greenhouse gas emissions. The negative impacts of surface mining to get the materials to build all these electric cars should be considered and what to do with those toxic electric batteries when they deteriorate. There are a lot of issues to be faced.

The EIA reported that US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell 2.1 million barrels from the previous week. At 417.9 million barrels, US crude oil inventories rose 10.1 million barrels last week and are about 4% below the five-year average for this time of year. Inventories of finished gasoline declined while inventories of blending components increased last week.

Distillate fuel inventories increased 4.4 million barrels last week and are about 16% below the five-year average for this time of year. Propane / propylene inventories fell 0.7 million barrels last week and are about 7% below the five-year average for this time of year. Total commercial oil inventories rose 10.2 million barrels last week.

Steve R. Hansen