Special Edition – oil and gas prices going UP!

Special Edition – oil and gas prices going UP!

$200 Oil Trifecta
Cold – Supply – Change

Three Forces

The weather, Mideast supply, climate change—these three forces could combine to give us oil costing $200 per barrel in the not-so-distant future. And the first two—weather and supply—could very well give us $100 oil in the immediate future.

Bank of America (BoA)

BoA points to the weather as the potential cause of oil costing $100 per barrel in the winter of 2022. According to Reuters, BoA Global Research recently posted an update:

“A much colder than normal winter could lead global oil demand to surge by 1 to 2 million barrels per day (mbpd), with the winter supply shortfall easily exceeding 2 mpbd in such a scenario, the bank said in a note dated Sept. 10.”[1]

The BoA note continued:

“Downside risks include a new COVID-19 wave, taper tantrum, a China debt crisis, and the return of Iranian crude barrels. Having said all of that, winter weather risk is quickly becoming the most important driver of energy markets.” [2]

Weather experts point to an artic Polar Vortex threatening Europe and the United States.

“A new stratospheric Polar Vortex has now emerged over the North Pole and will continue to strengthen well into the Winter of 2021/2022. It will interact with a strong easterly wind anomaly high over the tropics. This interaction happens every few years and has actually brought colder winters to Europe and the United States in the past.”[3]

So bundle up to stay warm. And stick some extra money aside to pay for higher gas and a spike in home heating.

OPEC—At It Again

Covid brought a decrease in the demand for oil. Responding, OPEC cut its output by 5.8 million barrels per day. Then, when world economies bounced back faster then expected, OPEC raised production 400,000 barrels per month.

The rise was not enough to tackle the rise in gasoline prices, so the Biden administration and the government of India called for a more rapid increase in production.

“OPEC members seem to not view rising prices as a critical problem for now,” energy analysts at risk consultancy Eurasia Group said in a research note.[4]

So brace yourself: cold weather and a shrinking supply could give us $100 oil by year’s end.

And Then There’s This

Recently, western governments have banded together to limit the rise in the Earth’s temperature to less than 1.5 C degrees. How to achieve this goal? According to the journal Nature, the secret lies in keeping oil, gas, and coal in the ground:

“A report by scientific journal Nature earlier this week noted that 58 per cent of the world’s oil reserves, 59 per cent of fossil methane gas reserves and 89 per cent for coal reserves should remain in the ground . . . .”[5]

Needless to say, this is not music to OPEC’s ears, and according to one Mideast energy minister:

“‘Recommending that we should no longer invest in new oil… I think that’s extremely dangerous,’ Mohammed bin Hamad Al-Rumhi, Oman’s energy minister, told a conference on clean energy transitions on Thursday.”[6]

“‘My biggest fear, if we stop investing in the fossil fuel industry abruptly, is there will be energy starvation and the price of energy will just shoot (up),’ said Al-Rumhi, in charge of output in the Middle East’s largest producer outside of the Organization of Petroleum Exporting Countries.”[7]

Cutting supply does not necessarily reduce demand. As noted above, prices will just “shoot up.”

So $200 oil might very well greet us at the pump in the not-so-distant future.

Weekly Market Commentary

Weekly Market Commentary

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Weekly Financial Market Commentary

October 4, 2021

Our Mission Is To Create And Preserve Client Wealth

September strikes again…

If you look back over the last 20 years, September has been the worst performing month for the Standard & Poor’s 500 Index, according to Nasdaq.

This year, the S&P 500 dropped 4.8 percent in September. That wasn’t enough to wipe out gains from earlier in the third quarter, and the Index finished the quarter slightly higher. The Dow Jones Industrial Average and the Nasdaq Composite Index also tumbled in September. Their losses erased the previous two month’s gains, so the Dow and Nasdaq finished the quarter lower than they started it, reported Caitlin McCabe and Caitlin Ostroff of The Wall Street Journal.

Investors had a lot to consider during September and over the third quarter, including:

·         Resurgence of the coronavirus. On July 1, the seven-day moving average of coronavirus cases in the United States was about 14,500. Early September, the average had rocketed to about 170,000. By the end of September, the average was trending lower, reported the Centers for Disease Control.

One result of COVID-19 is that life expectancy at birth fell from 2019 to 2020. In the United States, life expectancy at birth has fallen by more than one year. Italy, Poland and Spain also have seen life expectancy drop by more than one year, reported The Economist. Lifespan increased in two countries: Denmark and Norway.

·         Global economic growth concerns. The resurgence of COVID-19 also dented global business executives’ confidence that the world economy will improve during the next six months, according to latest McKinsey Global Survey. While the majority (71 percent) of those surveyed said that economic conditions will improve in the coming months, the number was lower than the prior quarter’s 81 percent. Survey respondents said the top risks to economic growth were the pandemic, supply chain disruptions and inflation.

·         Supply chain disruptions. The supply chains issues created by the pandemic have not been easy to resolve. David Lynch of The Washington Post reported:

“The commercial pipeline that each year brings $1 trillion worth of toys, clothing, electronics and furniture from Asia to the United States is clogged and no one knows how to unclog it…the median cost of shipping a standard rectangular metal container from China to the West Coast of the United States hit a record $20,586, almost twice what it cost in July, which was twice what it cost in January, according to the Freightos index. Essential freight-handling equipment too often is not where it’s needed, and when it is, there aren’t enough truckers or warehouse workers to operate it.” Toward the end of September, more than 70 container ships were anchored near the West coast, waiting for a berth to open so goods could be delivered.  

·         Rising inflation. The cost of producing goods has been increasing. “The producer price index, a proxy for corporate or wholesaler costs, has risen for eight months in a row and, in August, was up 10.5% from a year earlier, the highest reading since June 1981. Compare this to the consumer price index, a proxy for realized manufacturer or retailer prices, which was up 5.3%. This 5.2-percentage-point gap is one of the largest in more than 40 years, suggesting higher costs are outpacing merchant end-prices…,” reported Lisa Shalett of Morgan Stanley. When producer costs rise faster than consumer prices, companies’ profitability may drop and that could negatively affect earnings.

·         Tightening central bank policy. The Federal Reserve is concerned about inflation, too, and is considering a move toward less accommodative monetary policy. In late September, Federal officials indicated that tapering – slowly reducing monthly purchases of securities – could begin later this year. Once purchases have ended, the Fed could begin to raise interest rates in late 2022 or 2023, depending on how the economy is growing, reported Jonnelle Marte of Reuters.

As if these issues weren’t enough, investors also had to process the potential effects of a global energy crisis, China’s regulatory crackdown, and another U.S. debt-ceiling standoff.

Can we talk? The pandemic accelerated the adoption of autonomous checkouts at retailers. Some stores have self-checkouts, while others have installed a “combination of sensors, cameras, computer vision and deep learning” that makes it possible to eliminate cashiers and checkouts entirely, reported Anna Oleksiuk on the Intellias blog.

At the other end of the shopping-experience spectrum is the “Kletskassa,” also known as the “chatty checkout,” which was implemented by a large grocery store chain in the Netherlands. It’s a checkout line that promises conversation with the cashier. 

“1.3 million people in the Netherlands are older than 75 years – and one large supermarket chain is making sure they’re not getting too lonely in their elder years. The Dutch government with its campaign, ‘One Against Loneliness,’ has galvanized organizations, towns, companies, and individuals to find solutions. The [grocery store chain]…is doing their part with its innovative chatty check outs,” reported The Good News Network.

The slower, chatty lane was developed specifically for older citizens, but may appeal to a much wider group of people on days when they have the time to engage.

Weekly Focus – Think About It
“For me, I am driven by two main philosophies: know more today about the world than I knew yesterday and lessen the suffering of others. You’d be surprised how far that gets you.”
—Neil deGrasse Tyson, astrophysicist

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https://www.wsj.com/articles/global-stock-markets-dow-update-09-30-2021-11632987743 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/10-04-21_Wall%20Street%20Journal_Stocks%20End%20September%20with%20Losses_2.pdf)
https://covid.cdc.gov/covid-data-tracker/#trends_dailycases (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/10-04-21_CDC_Trends%20in%20Number%20of%20COVID-19%20Cases_3.pdf)
https://www.economist.com/graphic-detail/2021/09/29/in-many-rich-countries-covid-19-has-slashed-life-expectancy-to-below-2015-levels (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/10-04-21_The%20Economist_In%20Many%20Rich%20Countries%20COVID-19%20Has%20Slashed%20Life%20Expectancy_4.pdf)
https://www.washingtonpost.com/business/interactive/2021/supply-chain-issues/ (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/10-04-21_The%20Washington%20Post_Inside%20Americas%20Broken%20Supply%20Chain_6.pdf)
https://www.barrons.com/articles/stock-market-today-51633076687?mod=hp_LEAD_1 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/10-04-21_Barrons_The%20Down%20Climbed%2c%20Merck%20Rose_9.pdf)