The Energy Report: The Energy Weapon

Maybe instead of saving the planet from climate change, we should spend more time worrying about saving the planet from World War III. Europe and the Biden administration seem to fail to understand the vital importance of energy security, not only to keep warm and keep your economy going but from a national security standpoint. When energy supplies become vulnerable, the entire country becomes vulnerable. It’s a lesson that should have been learned after the Arab oil embargo and World War II. Europe’s failure to heed the warning by the Trump administration to not get too dependent on Russia for vital energy supplies could now see their supplies cut off.

Europe’s over-reliance on wind and solar and shutting down oil and gas production fields and non-greenhouse gas emitting nuclear power plants, have put Europe in a dangerous and weakened state. They are now heavily dependent on Russia for natural gas and satellite states like Belarus that control pipelines look silly from a security standpoint. The U.S. is warning Europe that Russia is planning to invade Ukraine, while Putin lackey Belarusian President Alexander Lukashenko says that due to a border crisis over what it sees as a manufactured migration crisis with Poland, “We are heating Europe, they are still threatening us that they will close the border. And if we shut off natural gas there? Therefore, I would recommend that the Polish leadership, Lithuanians and other headless people think before speaking,” Lukashenko said. Oh, sure Russian President Vladimir Putin is promising Europe more supplies. Must be difficult planning an invasion while trying to supply Europe with desperately needed gas supply.

The control of energy supply has always been essential for national security and, God forbid, war. When you get leadership that suggests, as the Pentagon did recently that, “increasing temperatures; changing precipitation patterns; and more frequent, intense and unpredictable extreme weather conditions caused by climate change are exacerbating existing risks for the U.S.” I would agree there are existing risks to Europe and the U.S. from counties like Russia and Belarus as they use their fossil fuel for dominance and as a potential weapon of war.

In the meantime, back on the oil ranch, oil prices are choppy and weak as traders prepare for what the Biden administration might attempt to do to bring down prices. The Biden administration is getting desperate because their energy policies have driven up the cost of oil and gas, which is increasing overall inflation, not to mention their policies of printing more money and stimulus checks.

According to sources, the reason they have not acted as of yet is there is no agreement in the administration as to what they should do. An SPR release as most experts already know will fail. As have been written before, release from the reserve will only serve to increase demand, it will artificially lower prices in a market where the demand is insatiable and fundamentally undersupplied. China tried to release from their reserve, and they did lower prices for a short period but now they have to refill their coffers and they’re paying a much higher price than they would have had to pay had they not tried to intervene in prices. Besides that, OPEC would more than likely respond with a production cut to match any release from the reserve.

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Number 2, a ban on U.S. oil exports would also fail. The U.S. produces light oil that is better suited for foreign refineries. If they ban U.S. oil exports, it will only serve to make U.S. production fall. Oil fields will have to be shut because there will be nowhere to run the oil. Most U.S. refineries can’t run light oil. It would lead to layoffs which might be ok with the Biden administration as they are rooting for the bankruptcy of the US oil and gas industry away.

To lower the price of oil what I would do is send a message to OPEC that we were going to reinvigorate our U.S. oil, gas and shale industry. We should tell them that we’re going after their market share. Oil and gas revenue seems to be the only thing that Russia and OPEC understand. We should make it a national priority to stand up to OPEC plus Russia by producing more oil and gas. The U.S. oil and gas producers are the cleanest in the world and the only way that the U.S. can do a transition from these fuels without putting our economy and our national security at risk is with American workers. Until we have viable alternatives for oil and gas we should continue to be the world’s leader in oil and gas.

OPEC lowered their global oil demand estimate, which means that they will be reluctant to raise oil output. OPEC said global oil demand would grow by 5.7 million barrels a day this year, 160,000 barrels a day less than it expected last month. OPEC reports that demand for oil in 2021 to total 96.4 million barrels a day.

Oil is in correction mode and the first key support is the psychologically important $80.00 per barrel area. The second of course is the Bolinger ban which, after yesterday’s weakness, moves down a stitch. The fear is greater than the reality of what the Biden administration can do to bring down oil and gas prices. They can’t even decide among themselves what to do and whatever they do, from what we are hearing, isn’t going to have a long-term effect. Use the weakness in both oil and natural gas as an opportunity to hedge. It may be your last best chance, to steal a quote from the COP 26 conference, that thankfully is ending.

Batteries Included: Batteries for EV cars are probably as important as pick-axes were to the gold rush miners. According to Bloomberg, EV batteries account for about 30% of a vehicle’s price. The standard for EV cars is Lithium-ion batteries.