August 9, 2022

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The Energy Report: Oil Flipping Out

are flipping out. The market has traded on both sides of unchanged as Omicron fears in China raise demand fears while supply and demand realities are now very bullish. Libya supply issues continue with the weather. Libyan crude output has recovered to around 900,000 b/d after pipeline maintenance at the eastern Waha oil fields was complete, but around 300,000 b/d of production still remained shut-in as a blockade at its key western oil field remained in place, Libya-based sources said Jan. 10, according to {{0|S&P Global} Platts.

Bloomberg reports that Libya’s oil exports, already sharply curtailed following a blockade by paramilitaries in the west, are set to fall further after bad weather closed ports in the east. The Es Sider, Ras Lanuf, Hariga, and Zueitina terminals were shut Saturday and are likely to remain closed until early next week, two people said, asking not to be named as they’re not authorized to speak to media. It’s a further setback for the OPEC state, whose production has sunk below 1 million barrels a day.
Russian and Ukraine worries are high.

The Wall Street Journal reports that Russian and US officials meet Monday to discuss the large-scale buildup of Russian troops at Ukraine’s border, as Washington seeks to avert an invasion of the country and defuse one of the most serious geopolitical crises between Moscow and the West since the end of the Cold War. Russia has amassed a force of about 100,000 troops near Ukraine in response to what it says is a threat to its own security from the west. The Kremlin has accused the North Atlantic Treaty Organization of encroaching into Russia’s backyard with military ties to Ukraine. It has demanded that NATO halt its outreach to eastern countries, including Ukraine.

The trend is back up for the oil market, and Omicron seems to be the biggest risk to the price. We think that we will see a big snapback in product demand as the demand drops in last week’s reports were greatly exaggerated.
Around the world, the burgeoning energy crisis has governments rethinking their failed energy approach and going back to what was obvious to energy experts all along. Bloomberg News reports that “the green energy transition is hitting some speed bumps, as power shortfalls in Asia and Europe boost global demand for fossil fuels. That exposes the pitfalls of relying too much on fickle wind and solar and focusing more on nuclear energy. Nuclear power must be part of the solution to reduce greenhouse gases.

Although renewables have dominated efforts to battle climate change, the International Energy Agency says achieving net-zero greenhouse gas emissions by 2050 will require doubling nuclear power worldwide. It accounted for just 4% of primary energy consumption in 2020, according to BP Plc’s Statistical Review of World Energy. “Nuclear needs to be part of the broader conversation,” says Joseph Majkut, director of the energy security and climate change program at the Center for Strategic & International Studies in Washington, DC. “We’ll need to build quite a lot to get there.”

This is a change of attitude from the global energy elites, many of whom came to age in the “no nukes” era. Reality is starting to set in as bad energy policy is risking global stability, and more importantly to these leaders, it is risking their jobs.
Biden’s dream to electrify America’s car fleet is not going to come without some environmental and economic costs. Despite big subsidies to carmakers, electric costs will get more expensive. It has already been documented that for an electric SUV to have a net positive effect on greenhouse gas emissions, one would have to drive that car over 100,000 miles.

The energy it takes to charge cars and produces batteries is just the tip of the iceberg. Zerohedge reports that the price for lithium is hitting fresh record highs as the parabolic growth in the electrification of vehicles by major automakers increases demand. Mining companies worldwide are scrambling to increase production and develop new sources of the world’s lightest metal.

China, the largest battery-producing country, reported last week that the benchmark price of lithium carbonate was about 300,000 yuan (just over $47k per ton), an increase of about six times from January 2021. Soaring prices come as electric-car makers, such as Tesla (NASDAQ:), report exponential growth in the US, Europe, and China. A Must Read from Zerohedge.

  is getting a taste of winter. Freeze offs are slowing production, and demand is going through the roof. EBW Analytics reports that the February natural gas contract spiked to $4.184 as of Sunday night, building on last week’s gains as gathering cold over the weekend added 9 gHDDs to late January and lingering production freeze-offs limit supply. The gain brings the NYMEX front-month to key technical resistance; if prices can continue to break higher, the growing price inelasticity of demand may open the door to steeper gains ahead. However, heating demand may peak on Tuesday before falling notably later in the week. While weather forecast evolution will remain a critical variable, the more likely scenario is for the latest move higher to fail and for gas prices to begin to recede later this month. Large projected withdrawals and a reemerging storage deficit heading into the peak of winter suggest a volatile path ahead.

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