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2yrs ago Managed Futures blog.pricegroup Views: 277

Suddenly it seems that everyone now loves pipelines. The anti-pipeline crowd just received a lesson in the vital importance of pipelines to the economy and our well-being when hackers took the Colonial Pipeline, the country’s largest fuel pipeline, hostage causing gas shortages and panic. Now we are hearing complaints that ask the question, why are we so dependent on just one pipeline. Maybe we need to build more pipelines to reduce the risk to lives and the economy. Oh, wait a second, I forgot, pipelines are bad and could be an example of environmental racism in certain cases.

Energy Secretary Jennifer Granholm who used to suggest that she never saw a pipeline that she liked is now saying that the government could give orders quickly to prioritize the pipelines to the most in-demand locations. She also said that we did not have a gas shortage but a gas squeeze and suggested that we should not panic about the gasoline supply. I don’t think Americans panicked; I think she did.  What she really said was, “Much as there was no cause for, say, hoarding toilet paper at the beginning of the pandemic,” Granholm told reporters, “there should be no cause for hoarding gasoline, especially because the pipeline should be substantially operational by the end of this week and over the weekend.” Energy Secretary Jennifer Granholm said that Colonial could make a decision on restarting operations on Wednesday but cautioned that it would take a few days after that for the pipeline to be fully active.

The Energy Secretary is correct that a lot of the reason for gasoline shortages is hoarding yet the consumers, with no clear timeline on when the pipeline might resume, had real concern that they may not have enough gas especially because of the lack of confidence they have in the system. When this hacking group known as the Dark Side took control of the pipeline, there is no clear evidence that they could move on to other pipelines if they so choose. The Biden administration also lifted driving restrictions on tanker drivers for the emergency, yet even before this hack there was a shortage of drivers. Now with gas stations running on empty the logistics to get gas to the stations is even more complicated. Pipelines are the safest and most efficient way to move fuel and with many tanker trucks sitting idle, the ability to respond to gas panic buying is a logistical nightmare.

The Biden administration will give a House briefing on the cyberattack at 5p.m. Eastern time on Wednesday. They must realize that this attack on U.S. energy infrastructure is making Americans feel vulnerable. This is an attack on our economy and our people and the Biden administration needs to take steps to make us less vulnerable to these types of attacks. This time it was a pipeline, next time it could be a refinery or a nuclear power plant putting many lives at risk. The Biden administration also must reverse some of its anti-pipeline and drilling restrictions that make us more dependent on foreign actors. To achieve our climate goals and energy independence, we need to focus on more pipelines, natural gas and nuclear power.

The crude oil market that was falling a bit on reports of reduced refinery runs on the Gulf Coast are now rebounding on the fact, that the normally bearish International Energy Agency (IEA) is reporting that the global oil supply glut is gone years before the oil demand pessimists predicted. The EIA says that, “Progress in vaccinating the world against COVID-19 means the world’s economic recovery and demand for oil will outpace the output of top producers. The anticipated supply growth through the rest of this year comes nowhere close to matching our forecast for significantly stronger demand beyond the second quarter,” the IEA said in its monthly report, citing increased pumping from OPEC+ countries. In other words, the IEA is acknowledging what we were predicting months ago. Still, they have the “but” as in “but India’s COVID crisis is a reminder that the outlook for oil demand is mired in uncertainty. Until the pandemic is brought under control, market volatility is likely to persist.”

The EIA report also shows that jet fuel will climb to about 70% of the 2019 level this year. That means that with growth we could see overall oil demand exceed pre-covid levels, leaving us undersupplied globally late this year. Maybe the Biden administration should go beyond short-term rule to ease supply constraints due to the pipeline and get ready to address what could be a more significant shortfall in the future. If they fail to do so, it will cause sharply higher prices and will create big issues for an economy that is already fearing the threat of inflation.    

AAA says that gasoline prices hit a national average of $3.00 a gallon and The Energy Report predicted months ago that this was going to happen. Admittedly, the pipeline issue helped hit that price, yet we warned months ago that this was coming. Reduced refinery capacity and investment and a rebound in gas demand made $3.00 inevitable. Now this summer could we hit $3.30? Yes. Get hedged and stay hedged as we have been saying all along.

Thanks,
Phil Flynn

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