I have kept things simple for my subscribers, because sometimes things really are. I’m bombarded by overwrought English all the time by energy “experts” of all sorts, saying things in complicated ways when a simple sentence will do.
And simple sentences will do well enough here. We are in the midst of a secular bull market in oil, brought on by half a decade of low prices that has decimated production. Now that the pandemic is coming under control, there is a surge of pent-up demand for energy that oil companies cannot service.
Simple: Oil is going up.
Here’s another: Market’s don’t go in one direction, no matter how strong or weak they are. And when you’re in the midst of a bull market and trying to manage your investments there is an old trader’s rule to follow – BUY DIPS.
The recently closed COP26 UN climate conference has provided us with one of those dips.
While ostensibly working on global commitments for controlling emissions, money for environmentally challenged countries and incentivization of sustainable energy development, most of the leaders at the conference were engaged with a current energy crisis very much about fossil fuels, and not renewables.
There was some success for the environmentalists at COP26, specifically in methane restrictions that will have great benefits not only for the environment, but also (counter-intuitively) for oil companies as well, and also in the global guidelines for Carbon trading, a codicil they’ve been working on for six years. The environmentalists will find these less discussed accomplishments of COP26 will have greater importance than they realize.
But on to fossil fuels and us. The market impact of COP26 on oil was in the conversations Joe Biden was forced to have about high gas prices and what he was going to do about them. Now, gas prices are a political bugaboo to all American Presidents and definitely worrying enough to Biden that he felt the need to posture in the possible steps he could take. First, he tried directly threatening the Saudis, then had a private chat with the Russians. Both of these finding little purchase, his administration has taken to threatening a reinstatement of the oil export ban or a release of oil from the Strategic Petroleum Reserve (SPR).
Let’s be clear about this – there is little that President Biden can do. But these threats, along with the general dynamics of the oil market to take a break from the parabolic move it was making towards $90 a barrel has given us the dip we have been looking for.
Whether you are trying to initiate a new energy position, or trying to add to an already successful one, I believe that the moves that a Biden administration could take, even a scheduled SPR release, will have limited impact on the trajectory of oil throughout the rest of the year and into 2022.
