The Biden administration has a crisis at the border but for energy traders, they’re probably more focused on the coming energy crisis. The combination of a slow comeback in Gulf oil production after hurricane Ida an energy policy by the Biden administration that is discouraging oil and gas production, is creating a situation that is very bullish for petroleum and natural gas markets. The administration that is always looking for some new way to shoot itself in the foot, better come to grips with the fact that in every major category of winter heating fuels, the U.S. is below the five-year average and we could see huge upside spikes in prices this winter.

We warned about propane inventories yesterday. They are 21% below the five-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 that will need supply to sell to distributors. However it plays out, the one thing we know for sure, it’s going to be very expensive.

Natural gas prices have been at record highs in Europe and is 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 EIA 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 five-year average of 3,311 Bcf. At 3,082 Bcf, the total working gas is within the five-year historical range. That report is not very comforting especially when you put it into the context of global supplies of natural gas and gasoline for that matter.

Reuters reports that 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 labor 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 Super Cycle in commodities is dead? A few years back when we started talking about the coming shortage in oil and natural gas, prices we 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 analyst dismissed what we were saying and that the covid 19 situation probably exasperated the situation. But the super cycle 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 about 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 is going to create the potential for one of the biggest price spikes we’ve seen in energy since 2008. Energy prices will be reminiscent of the 1970s.

The Biden administration’s energy policy is going to create stagflation, something we had back in the 70s, by creating an environment where high energy prices reduces economic growth but at the same time cost everybody 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. Biden’s policy is bringing misery to a lot of places whether it be at the border, throughout the military due to his Afghanistan pullout that angered our allies such as France, Saudi Arabia, Germany and the UK just to name a few. 

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.

Thanks,
Phil Flynn

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