Steve Bull's Blog, page 212
July 13, 2022
A potential ‘black swan’ for US oil prices is being overlooked: unreliable electricity grids
Failing power grids and electricity shortages across the US could throw the oil market into chaos. Photo by: Planet One Images/UCG/Universal Images Group via Getty ImagesFailing US power grids could be the next vulnerability in the supply chain for oil, energy trader Brynne Kelly says.Most of western and central US is at high risk of electricity shortfalls or disruption this summer, research has found.Problems with power grids are a potential catalyst for chaos in energy markets that are underappreciated, Kelly says.Electricity grid problems in the US are a potential “black swan” that could wreak havoc in energy markets, according to Cornerstone Futures research director Brynne Kelly.
In an analyst note, the energy trader argues that failing power grids and electricity shortages could be the next vulnerability in the supply chain for oil and its products, such as gasoline.
Those under-the-surface risks are being overlooked, and that makes them a possible “black swan” — an unpredicted event with a severe impact. While crude oil isn’t much used to generate electricity, power itself is needed to make oil, Kelly noted.
“Said another way, a failing power grid COULD BE the next oil chain supply problem,” she said.
“Problems with power grids across the US and other countries are a potential catalyst for chaos in energy markets that are underappreciated.”
The reliability of the US electricity grid is being taken for granted, Kelly said. But it’s under pressure as the industry goes through a mandated shift from fossil fuels to clean energy sources, and with the peak summer demand ahead.
…click on the above link to read the rest of the article…
James Howard Kunstler: It’s All Going to Have to Get Smaller
— James Howard Kunstler“I’m not a techno-narcissist. I don’t think there are technological rescue remedies that will allow us to keep doing what we’re doing…”
There is a prevailing fallacy, despite warning signs to the contrary (looming peak oil, fragile markets, and climate weirdness, among others), that we can continue in perpetuity the lifestyle to which we’ve become accustomed. All we need to do is to pump into The System more debt or more political insanity, or hope that alternative energies or some new techno-solution will bail us out.
But, at best, all debt-fueled growth, shale oil “miracles” and green fuels can do by themselves is to make the Long Emergency just “a little bit longer.”
“The Long Emergency” is a phrase coined by James Howard Kunstler to describe the economic, political and social upheavals that will dominate the first decades of the 21st-century as the honeymoon of affordable energy comes to a close. It is also the name of Kunstler’s seminal book on the topic. (The Long Emergency is one of fifteen books on our “Essential Reading List for the Strong Towns Thinker.”)
James Howard Kunstler is our very special guest on today’s episode of the Strong Towns podcast. He is the author of more than 20 books, including The Geography of Nowhere, Too Much Magic, and the World Made By Hand novel series.
In this episode, Strong Towns president Charles Marohn talks with Kunstler about what has changed—or perhaps what hasn’t changed—since The Long Emergency was first published in 2005. Kunstler explains why the “psychology of previous investment” (4:45) makes it so hard for most people to imagine living differently. Marohn and Kunstler also discuss (17:00) what’s wrong with the Green Revolution narrative that we can keep doing everything we’re doing now, if just “do it green”:
…click on the above link to read the rest of the article…
Is the Euro An Energy Problem Or A Central Bank Problem?
If its an energy problem, then there is no way back. It looks more like a central bank problem to me.
As mentioned in the last post, the huge break in energy prices between the US and the rest of the world could explain the extreme dollar strength we have seen this year.
Part of the problem I have with that is that the corollary of that trade is energy exporters should see a boost from the improved terms of trade. Australia is one of the biggest LNG exporters in the world, and it has not seen any currency appreciation.
There is another way of looking at currency markets that would better explain this behaviour. To generalise, central banks control short term interest rates, and the market control long term rates. When 2 year bond rates diverge radically from central bank rates, its the market’s way of saying inflation is way stronger than expected, and the central bank needs to do something about it. You can see that the market told the Fed to cut to close to zero when Covid hit, and has been telling them to raise rates since late 2021, which they have now followed through on.
Australia got the same signal from the bond market, but has been much tardier to raise rates.
Australia has typically had higher interest rates than the US, this tardiness in raising rates is probably explaining a lot of the currency weakness.
So if central banks tardiness is driving a currency like the Australian dollar, what is it saying about Europe?
July 12, 2022
Worst Of Global Energy Crisis Could Be Approaching, IEA Head Warns
The bullish narrative for oil markets builds as the head of the International Energy Agency (IEA) and a new Organization of the Petroleum Exporting Countries (OPEC) report, all separately, warned Tuesday about a further global squeeze on energy supplies.
IEA Executive Director Fatih Birol told the audience at a global energy forum in Sydney that “the world has never witnessed such a major energy crisis in terms of its depth and its complexity.”
Birol continued and offered this apocalyptic warning:
“We might not have seen the worst of it yet … this is affecting the entire world.”
He explained that the global energy system is fracturing, and many factors contribute to this, including geopolitics, such as the Russian invasion of Ukraine.
“And as a result, we see that the entire energy system is going through a crisis.
“Oil, natural gas, coal, and electricity prices, they’re all going up of the roof. Why? Very simple. Russia, the country that invaded Ukraine, is the largest exporter of oil and natural gas.”
Birol also said winter in Europe would be “very, very difficult,” adding this may have severe implications for the global economy.
Besides Birol’s warning, OPEC’s first oil-market outlook for 2023 suggests no relief, and crude output would need to increase even though many of its 15 members are already pumping at or near full capacity. OPEC expects global oil demand growth to exceed supplies by 1 million b/d next year.
The outlook for 2023 indicates supply strains will persist, and increasing production is desperately needed (something the group could have trouble with because of years of underinvestment and political instability).
…click on the above link to read the rest of the article…
Of Heroes and Dragons
in which a planet-sized blindspot gets revealed
Image credit: Kent Pilcher via UnsplashYou were warned
The following read might incite serious levels of cognitive dissonance and result in anger, disbelief and an irresistible urge to trash the author. Unfortunately I cannot take responsibility for your actions, so proceed at your own risk from here on.
During my journey, discovering the predicament of our civilization, I’ve met quite a few different views and perspectives on how we should proceed from where we are as a global community. I listened to countless stories on how technology, or the ‘inevitable’ awakening of a ‘collective human consciousness’ will ‘solve’ every ‘problem’ we have and how we only need the money or simply the ‘will’ to save ourselves. However, there was always a fly in that magic ointment.
I had to realize that in order to promote and to keep on believing in the continuation of this high tech civilization, one has to embark on a mental journey into fantasy land, populated with heroes and cruel dragons.
(Hey, I warned you, it’s still not too late to stop reading!)
A problem dissected
Every fantastic story, no matter how unrealistic it is, always has an element of truth to it, but there is also a typical pattern of thinking required to wholeheartedly believe in them.
It usually starts with accepting a small subset of predicaments (discussed on these pages), but only by mentally reducing them into a ‘problem’ with a ‘solution’ — which they are definitely not. The next step requires dismissing the rest of the predicaments altogether — either because of a lack of knowledge or care — or, as I often warn my readers, because of rampant magical thinking; believing that as a boon to implementing the ‘master plan’ these ‘problems’ would be sorted out automatically.
…click on the above link to read the rest of the article…
Germany Plans ‘Warm Up Spaces’ in Response to Gas Shortages
Sports arenas to be used to help people who can’t pay skyrocketing energy bills.
picture alliance via Getty Images
Cities across Germany are planning to use sports arenas and exhibition halls as ‘warm up spaces’ this winter to help freezing citizens who are unable to afford skyrocketing energy costs.
Bild newspaper reveals how the the nation’s Cities and Municipalities Association has urged local authorities to set aside public spaces to help vulnerable citizens in the colder months.
Germany has already seen its gas supply from Russia significantly restricted as a result of its support for sanctions and the war in Ukraine.
“We are currently preparing for all emergency scenarios for autumn and winter,” Jutta Steinruck, the city mayor of Ludwigshafen told Bild, where the Friedrich-Ebert-Halle arena is about to be converted into a warm up hall.
“Nobody can say exactly how dramatic the developments will be,” said Gerd Landsberg, the head of the Cities and Municipalities Association.
Landberg urged local municipalities to create “heat islands” and “warm rooms, where people can stay, even during a very cold winter.”
The western German towns of Neustadt, Frankenthal and Landau are also making similar arrangements, while others are planning to turn off lights outside public buildings as well as deactivating traffic lights at night to save energy.
As we highlighted last week, Germany’s largest residential landlord which owns around 490,000 properties is set to impose energy rationing that will cut heating to tenants at night in response to falling gas imports from Russia.
Germans have also been told to take fewer showers, wear more layers of clothing and avoid washing their clothes and driving their cars as often.
…click on the above link to read the rest of the article…
Is Saudi Oil Production At Capacity?
Use it or lose it – this principle might apply to Saudi Arabia’s oil production capacity that is now eyed by the Western world to fill the Russia-sized gap in supply left behind by embargoes.
However, as Statista’s Katharina Buchholz details below, Saudi Arabia in the past three years only approached its declared maximum production capacity of 12 million barrels per day in one month, casting doubts on the kingdom’s ability to quickly up its production to stabilize world markets. According to Bloomberg, such predictions have come from UAE leadership, who together with the Saudis are the only OPEC members who have spare production capacity – at least on paper.
You will find more infographics at Statista
Joe Biden is traveling to Saudi Arabia this week and the increase of the global oil supply will be on the top of the agenda for the U.S. president. Up until now, the Gulf kingdom and its OPEC allies have been reluctant to make major changes as a result of the Russian invasion of Ukraine. OPEC stuck to its slow production increases that were scheduled to reverse Covid-era cuts between March and June, and only recently agreed to up production quotas faster in the coming months in the light of the dramatic world market developments. Saudi Arabia’s OPEC production quota for August 2022 stands at 11 million barrels a day – more than it has been in a long time and still a whole million barrels a day below the country’s elusive maximum quota.
As seen in data by the organization, Saudi Arabia has remained below its production quota prior to the Covid-19 epidemic and only once approached its declared maximum production capacity in April 2020 amidst a row with Russia that saw production quotas go out the window…
…click on the above link to read the rest of the article…
July 11, 2022
The Oil Industry and Involuntary Liquidation
I never thought I would be even tempted to defend the oil industry, and that’s not exactly what I intend to do here, but their situation, and the situation in which they have put us, need a little explaining. There are two major narratives about the oil business currently, spurred by spiking fuel prices and corporate profits. One is that President Biden is responsible for high fuel prices; there’s no point in even discussing that notion, it is simply too dumb to live. The other, embraced by a large number of very smart people, is that the oil companies are making obscene profits by price gouging — raising prices simply because they can, and using the profits to buy back stocks and pay higher dividends and salaries.
They are raising prices, and they are racking up historic profits, but to understand what’s happening to them, and us, we need to know, as Paul Harvey used to croon, “the rest of the story.”
Oil companies like to say they “produce” oil but they don’t — they have to find it and get it out of the ground. If they don’t find enough new oil to replace the oil they have “produced,” they are in trouble. And if that state of affairs goes on very long, they find themselves in involuntary liquidation. For several years now, they have not been finding enough oil to replace what has been used up, and 2021 saw the lowest level of new oil discoveries in 75 years.
For many years, one of the biggest expenses oil companies had was searching for new deposits. But these expenditures are categorized as capital expenditures (capex, for short) and do not appear in profit-and-loss statements. In recent years, however, most oil companies have virtually given up, and that is one reason they are diverting profits to investor and executive benefits…
…click on the above link to read the rest of the article…
Welcome to 1984
Welcome to 1984I’ve been addressing the war on cash lately, and for good reason. While everyone’s attention is focused on the war in Ukraine, inflation and the Supreme Court, government plans to eliminate cash are accelerating.
For example, central bank digital currencies (CBDCs) are coming even faster than many anticipated. The digital yuan is already here; it was introduced in China last February during the Winter Olympics.
Visitors to the Olympics were required to pay for meals, hotels, transportation, etc., using QR codes on their mobile phones that linked to digital yuan accounts. Nine other countries have already launched CBDCs. Europe is not far behind and is testing the digital euro under the auspices of the European Central Bank.
The U.S. was lagging, but is catching up fast.
The Federal Reserve was studying a possible Fed CBDC at a research facility at MIT. Now the idea has moved from the research stage to preliminary development.
Fed Chair Jay Powell said, “A U.S. CBDC could… potentially help maintain the dollar’s international standing.”
But this has little to do with technology or monetary policy and everything to do with herding you into digital cattle chutes where you can be slaughtered with account freezes, seizures, etc.
NOT Crypto
First off, CBDCs are not cryptocurrencies. The CBDCs are digital in form, are recorded on a ledger (maintained by a central bank or finance ministry and the message traffic is encrypted. Still, the resemblance to cryptos ends there.
The CBDC ledgers do not use blockchain, and CBDCs definitely do not embrace the decentralized issuance model hailed by the crypto crowd. CBDCs will be highly centralized and tightly controlled by central banks.
The CBDC ledger can be maintained in encrypted form by the central bank itself without the need for bank accounts or money market funds…
…click on the above link to read the rest of the article…
July 7, 2022
We’re heading for a messy, and expensive, breakup with natural gas
Russia’s invasion of Ukraine has exacerbated a number of fault lines already present within the global energy supply chain. This is especially true in Europe, where many countries were reliant on the superstate’s natural resources, and are now hastily looking to cut ties before the supply is shut off. This has revealed the fragility of Europe’s energy market, and caused it to drive up demand and prices for consumers all over the globe.
In the UK, things are becoming increasingly dire and energy prices are skyrocketing. Bad planning on the infrastructure side and the cancellation of several major domestic energy efficiency programs are exacerbating the problem. It’s clear that real, useful action on the national level isn’t coming any time soon. So, I wondered, what would happen if I, personally, simply tried to break up with natural gas on my own? It’s relatively straightforward but, as it turns out, it comes at a cost that only one percenters will be able to bear.
Dan Cooper: Energy consumer
I live in a four-bedroom, end-terraced house that’s around 150 years old and I’ve tried, as best as I can, to renovate it in an eco-friendly way. Since we bought it almost a decade ago, my wife and I have insulated most of the rooms, installed a new gas central heating system and hot water cylinder. We are, like nearly 20 million other households in the UK, reliant on natural gas to supply our home heating, hot water and cooking. And in the period between January 8th and April 7th, 2022, I was billed on the following usage:
Usage (kWh)
Cost Per Unit (GBP)
Cost (GBP)
Electricity (incl. standing charge)
861
0.32
£307.18
Gas (incl. standing charge)
8696.7
0.753
£678.80
Total (incl. tax and other charges)
£1,035.28
…click on the above link to read the rest of the article…
