Just Too Strong
European energy woes won't disappear so fast
One of the great bonuses to the last week for us at the Energy Word has been the confirmation of a number of our theses on oil prices. We’ve seen oil continue to rally, despite a stock market that has been in general more lackluster in the last several sessions. Goldman Sachs is now calling for oil prices to reach $90 real soon, a number I’d not seen come out of anyone else’s mouth in the last several months- heck, the last two years - but mine.
All that said, we’ve not been particularly aggressive about investing in these stocks recently – while we’ve maintained our portfolio exposure, we’ve certainly not pushed “all in” in recent weeks.
The reasons for this are three uncontrollable market factors outside of oil: the continuing rise of pandemic numbers because of the return of kids to school, the floundering budget negotiations in Washington that might have the 1.1T infrastructure package at risk and the prospect of less Fed bond purchases and probably interest rate rises that might come from that in November.
Still, oil continues to show unmistakable fundamental signs of continuing strength, and we’d be foolish to ignore it – and we won’t.
And it’s more than just oil now – it’s particularly natural gas.
Now, I could tell you that the spikes I’ve seen in natural gas over the last decade or so have been historically short-lived. This latest one, which threatens $6/mmBtu (heavens!) looks like so many others I’ve seen since the shale gas boom annihilated the gas markets in 2008, only to sink back into cheapness.
But this time, I swear – gulp – is different.
The critical European shortages of natural gas are not the kind to be short-lived, based upon a weather anomaly, like so many others I’ve seen. There is a systemic change going on in energy in Europe and this is the price for it. I’m talking about the headlong rush into renewables.
I’m a greenie at heart, and support the move towards sustainable energy. I’m also a lifetime trader of energy markets, and know better what’s possible and what’s just a dream. The massive rise in natural gas and other energy prices in Europe is a direct result of the premature reliance on renewable energy to fill the gaps of still rising demand globally for energy.
You can see this trend everywhere – this rush towards solar and wind power. Even European majors like Shell are backpedaling away from shale oil as fast as they can.
They’re expecting too much too soon out of renewables – and they’re seeing the resultant prices of fossil fuels in response to that. But for us as energy investors - that’s good news.
The troubles in Europe won’t translate – at least not directly – for us here in the US. We’re not under the grip of one very biased supplier (Russia), nor competing for supplies with Asia. But we have some similarities – our own nat gas companies are still going broke as opposed to expanding, and drilling numbers are not going up much, despite the price rises.
Our own nat gas companies are not well capitalized, nor are they likely to be – again – good news for us, if we invest correctly.
So I think this move in euro prices for nat gas and oil is not going to be a flash in the pan – particularly in natural gas. And I have some ways to invest in that trend for the long haul – one in particular that’s slightly outside the box.
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