A friend once told me that his dad lost his four best friends in dog fights in the F4 Phantom over the skies of North Vietnam during the Vietnam War. A common term was “Buckle Up, it’s about to get entertaining”. However, entertaining was not always the word they used. This is an excellent analogy … Continue reading “Too little, too late, and in the wrong direction. How will the actions of the U.S. administration hurt investors and consumers?”
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March 7, 2022
A friend once told me that his dad lost his four best friends in dog fights in the F4 Phantom over the skies of North Vietnam during the Vietnam War. A common term was “Buckle Up, it’s about to get entertaining”. However, entertaining was not always the word they used. This is an excellent analogy for where the world’s energy market is right now. And entertaining is certainly not the best term to use to describe the world’s energy situation.
Over the weekend, oil and gas prices spiked up to $130 and $5 respectively. This is defiantly based on uncertainty, but there are mixed, and incorrect messages being sent around the media. I mean that if the problems that Elon Musk can get the severity of the situation and takes to twitter, shouldn’t we pay attention? Below is his post this weekend.
Let’s go over the key steps the current administration is taking to “save the consumers pain at the pump”. I have covered many of these topics in earlier articles, but they are all tied together in multiple places in this weekend’s news.
Asking OPEC to come and rescue us.
The Biden administration asking OPEC and OPEC + for more oil is absolutely a waste of time. First, they do not want to produce more oil as they are making the profits that they need to fund their country’s social and renewable projects. Making larger profits on oil and gas with lower production volumes is critical as they have not developed new wells that are required even to replenish the normal decline curves. Even the oil majors and large U.S. counterparts have not invested in the CapEx as required to keep supply at a stable level.
Potential bans on Russian oil.
The United States needs over 11 mbd and we export 8 mbd and import 8 mbd. We have these trades going on because of the difference in grades of oil around the world. The heavy oil from Russia is needed for our refineries and we can get that weight of oil from other sources. Canada would have been our best bet and that opportunity was killed the day that Biden stepped into office. It seems like we would want to trade with our Canadian neighbors rather than Putin. We would not need Russian oil if the Keystone Pipeline was built.
From Citgroup:
“Exports of Russian crude and gasoil are already being shunned, Citigroup Inc. analysts including Ed Morse said in the bank’s quarterly outlook for commodities. Citi’s base case is for a drop of 500,000 barrels a day of Russian production and a 60 million barrel reserves release. Its bull case sees Russian output falling by 2 million barrels a day by end-2022, with around 120 million barrels of reserves releases from the U.S. and other nations. In Citi’s super-bull scenario, Moscow will only be sending its crude to China and there won’t be a response from OPEC+. The Russia-Ukraine crisis also means there’s a high probability of multiple disruption risks including damage to pipelines and ports, higher tanker rates, export frictions and cyber-attacks, it said.”
Iranian Nuclear Deal
Iran has two main market-impacting problems that make any request from the administration anything other than an additional embarrassment for the country.
First: Having Russia negotiate the Iranian Nuclear Deal is absolutely one of the worst things anyone can possibly have a good outcome.? Russia will “hold’ the enriched uranium (code for weapons-grade) in Russia for “Safe Keeping”. We saw how that went with the “peacekeeping forces” deployed at the beginning of the Ukrainian war. The reason for the panic in the quick handling of the nuclear deal is they want to appear like they are going to get millions of barrels of oil from Iran to save the U.S. voter’s pain at the pump. This will not impact the supply side of what Iran brings to the table.
Second: Iran has successfully sidestepped United States sanctions and has been selling oil on the world oil markets. The millions of barrels pumped into the market were bought from China, the EU, and California. Over the last several years, California has averaged over 20% of its imported oil was from Iran. This was even with the sanctions in place. I have more information coming out shortly on the hypocrisy of the elite on the east and west coasts.
Sending negotiators to Venezuela for more oil.
While this is a good thought, Venezuela has been hit by the same problem the world’s oil markets have had in the last several years. Lack of capital. The lack of capital in Venezuela has been for political reasons and has caused their entire infrastructure crippling maintenance issues. They need millions if not billions to bring back their production capabilities. This will take years, and who would want to invest in a political environment hostile to oil company investments? Oh, wait isn’t what is going on in the United States?
Can we learn from the past?
I was asked in an interview today if 2008 high oil prices were based upon an oil embargo. No, not an oil embargo but rather a world financial crisis that had started several years earlier. Companies did not drill or invest in CapEx to replenish normal decline curves, massive regulations were put in place, and the consumers felt the pain at the pump. The reaction was the same then as it is now. Turn on the great oil faucet in the ground and get the price lower at the pump the next day.
Prices were $4 at the pump and $118, so seeing greater than $4 is a no-brainer as we are already seeing spikes this weekend over $130.
The Bottom Line.
The world is only the 4th commodities boom in history. The only winners in a commodity boom are the investors. The same things that started the oil crisis in 2008 are present today. Massive regulations, and the lack of investor confidence in oil and gas due to those regulations. The problem that we face today is several things that point to a multi-year recovery. ESG investing and its impact on lack of capital, oil-producing country’s dependency on profits to fund the social programs, the geopolitical issues, and the world energy crisis. The world’s energy crisis was brought on in a big way by the “Greener” movement forcing bad energy policies on everyone, and printing money for renewable projects.
We are in a serious energy crisis, and I will talk about proactive steps in other articles that we can take to shorten the time we spend in this energy pain point moment in time.
As always check with your CPA if alternative investments are good for your portfolio Take the assessment and see if it is right for you HERE.
Please reach out to our team at any time for answers to your questions.
Jay R. Young, CEO, King Operating
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