Note from Keith Kohl - Mar 20

[dan_s]

I subscribe to Keith's Energy Investor newsletter, so I get notes from Keith about the macro environment. My comments are in blue.
-----------------------------------------------------
Get Ready For More Pain At the Pump

It feels a little too early to be feeling some pain at the pump, doesn’t it?

I mean, we’re barely out of winter and still two and a half months away from the summer driving season and gas prices are already on the rise. Right now, the national average price for gasoline is $3.412 per gallon, which is nearly 5% higher than it was a month ago.

There’s a few things we can blame, whether it’s refinery outages that have helped constrain supply, or even the fact that demand has been understated for a while. Current U.S. gasoline demand is above 9 million barrels per day, with gasoline stockpiles hovering near the low range of the 5-year average.

However, the problem for us isn’t going to be filling up our tanks this week or next — it’ll be this summer when summer demand really kicks in. < Summer Blend gasolines (required by law in most states) are more costly to manufacture because the refiners cannot blend in NGLs (primarily Butane) to make gasoline cheaper. Why?, because butane makes gasoline evaporate faster causing more air pollution. Summer Blends of gasoline require more crude oil. This adds about 20 cents per gallon to the cost.

Russian Sanctions Drives U.S. Oil Exports to India

Whenever we’ve talked about global oil consumption growth, the conversation has always centered around China. Chinese demand growth has been the primary driver for oil prices over the last few years.

That has changed in 2024.

Today, more attention needs to be paid to India, a country that is expected to become the leading source for global demand growth going forward.

Thing is, India has been mostly hungry for cheap Russian petroleum ever since sanctions and the G7 price cap were established. Those two factors allowed India to buy their oil and petroleum products at a nice discount.

In fact, India quickly became Russia’s largest customer in recent years.

However, there’s been a bit of a problem lately…

With the recent drone attacks focusing on Russia’s refining infrastructure, as well as tighter enforcement on U.S. sanctions, India is being forced to look elsewhere. Indian refiners are now on pace to buy more U.S. oil in more than a year, recently picking up approximately 7 million barrels of April-loading crude so far this month.



Copper’s 11-Month Run Turns Investors Bullish on Miners

Copper prices just quietly hit a fresh 11-month high, and current outlooks believe this run has only just started if a looser monetary policy is adopted by the Fed.

Prices, however, are also buoyed by factors such like mine closures and protests in South American countries like Peru. And then we also have more support coming from Chinese coper smelters that are currently introducing cuts that will ultimately limit the supply of refined copper.

Even though analysts are bullish on growth in 2024, we may see an interesting buy opportunity develop in the near-term as China demand peaks during the second quarter.

The Energy Crisis Americans Don’t See Coming < This is bullish for U.S. natural gas prices because building a lot more natural gas fueled power plans is the only near-term solution.

I find U.S. power consumption to be an interesting trend to follow. If you take a look over the long-term, our electrical demand has been relatively flat. That trend may change sooner than most people think.

The surge in power use for operations such as bitcoin mining has been on our radar ever since prices bottomed in early 2023. Even the legalization of marijuana over the last decade has led to more and more power usage as grow operations began popping up.

However, this story is more than just about a boom in crypto and recreational cannabis.

The mass adoption of AI technology is going to take our power consumption to the next level as AI data centers continue growing at a record pace. The International Energy Agency reported recently that demand for electricity from data centers and crypto mining could double over the next 24 months. < An EPG member in Washington DC first brought this to my attention. He said that the U.S. electricity grid will need to be expanded by AT LEAST 30% to meet this surge in demand.

This presents a huge problem, but also a major opportunity. You see, all of this new power is going to create a crisis for the U.S. power grid.

Look, no matter how optimistic you are over the green energy transition, clean power is going to take decades to overtake fossil fuels like natural gas. And with our current fleet of coal plants dying out and not being replaced, the U.S. will have just two realistic options — continue taking advantage of our vast reserves of cheap natural gas, or turn to nuclear power, which is one of the few energy sources that can scale to the levels needed. < I agree that nuclear is the long-term solution, but nuclear power plants cannot be approved and built soon enough.

Good investing,

Keith Kohl, Energy Investor