More Fossil Fuels, Better Environment

The climate alarm over carbon dioxide (CO2) emissions continues to rage with new mandates to force drivers into electric vehicles – that are electrically powered primarily by fossil fuels. The good news is that the US leads the world in CO2 elimination with emissions falling to 40-year lows today. Meanwhile India and China lead the world with massive CO2 output increases. An estimated 3.8 million premature deaths occur in India annually due to burning of biomass indoors and coal pollution. What is our secret? The US has greatly increased its burning of petroleum-based fossil fuels. By substituting natural gas for coal, the US has been improving the environment more than other nations and even exporting our success to Europe to improve their air as well. If our government would support the clean air adoption of Natural Gas with more pipelines and shipping facilities we could save lives, money and help the environment around the planet, while the technology for renewable energy evolves. With unwitting Government resistance to US energy exports, our surplus of Natural Gas bottlenecked in the US remains entrenched, keeping prices low.

The US is the world’s largest producer and exporter of Natural Gas. Without Government regulation to support domestic use and export potential, it’s understandable to see persistent supply surplus and persistently low prices. NatGas should remain weak this year, but traders can look for a strong rally beginning in March as Seasonal pressures turn back up along with the anticipation of Fed rate cut optimism. Should Crude Oil prices fall under $60/barrel, drillers will begin cutting back on rigs and inadvertently shrink NatGas supplies and boost prices. Maybe next year?

Regardless of Oil supply and demand changes or technical momentum indicators, it is often helpful to observe the invisible hand of market behavior to major news events. Since early October the energy markets have been subjected to acts of violence in the Middle East on a regular basis, yet Bullish news consistently fails to reverse the Oil price downtrend. Hamas attacked Israel and Israel staged a massive counter-attack last October and Oil prices fell. OPEC+ continued with one million barrel/day Oil supply cuts and Oil fell yet again after a feeble rally attempt. The Iranian backed Houthi rebels controlling Yemen virtually shut down Red Sea Oil shipments in January triggering heavy US bombings and Oil remains in a basing pattern about $10 above two-year lows. Let’s not forget that the Administration is adding 100,000 barrels/day of demand, buying back Oil for the Strategic Petroleum Reserve (SPR). However, even this is a “drop in the bucket” for a country producing 13 million barrels/day and requiring 6 more years to refill the SPR at the current snails pace.

Now that the vast majority of analysts who were Bullish energy stocks have gone into hibernation, perhaps we are close to a Buy? ExecSpec turned Bearish on Oil at the 2023 peak last September and advised keeping these stocks out of the portfolio until at least Q1 of 2024. With China struggling we don’t expect long term upside moves in Oil and Gas without a major exogenous war event this year. We would be a short-term seasonal buyer between mid-March and mid-April should prices be trading near their monthly low. 

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