Disclosure: The following represents my opinions only. I am long AAV.TO, AMI.V, AOI.V, ARX.TO, ATH.TO, ATU.V, CJ.TO, CPG.TO, CPI.TO, ERF.TO, NSE.V, POE.V, RBY.TO, TAO.V, TGL.TO, TOU.TO, TXP.TO, VLE.TO, WCP.TO, and YGR.TO (Image credit to David Mark on Pixabay)
What a difference a few weeks can make. Like a lightning bolt from the sky, energy has become a very hot topic as natural gas, coal, and power prices have rallied to multiyear highs. Oil has also had a nice tailwind after the unexpectedly long outage in the Gulf of Mexico took over 30 million barrels out of oil inventories at a time when they were already being run down. On top of that, oil got a nice lift today to new highs as OPEC+ stuck to its plan to gradually raise output despite calls from the White House to increase output faster. But the real story in the energy markets lately is natural gas. Gas stocks have been creeping higher for a while, but the natural gas market had generally been flying quietly under the radar. That’s usually the case until it isn’t. Gradually, after a series of compounding events, gas is all of a sudden in short supply, confounding a market that had been led to believe that cheap and plentiful gas was here forever. There are too many links in the chain to go through them all in detail, but weather (both hot and cold), energy policy, renewables, LNG market dynamics, carbon reduction goals, and the electrification theme are all part of it. It feels a bit like one of those rogue waves you hear about in the ocean… you know, like the one from the Perfect Storm… where the course is already charted and there’s no time to do anything about it but hope… gulp.
Granted, winter weather is a wildcard… give the northern hemisphere a mild winter and maybe things don’t go more goofy… because they’ve already gone goofy. Energy markets are seeing electricity and natural gas price spikes in China, the western US, and much of Europe. The extreme natural gas prices in Europe are affecting everything from meat supply, to cucumbers and tomatoes, to beer, to fertilizer… never mind the absolutely sky-high bills that energy consumers (i.e., everyone) are seeing. Hopefully Russia comes to the rescue this winter with Nord Steam 2 coming online for Europe. Hmmmm. So Europe is counting on Russia to be charitable with gas supply? Interesting times indeed.