As Europe braces for war, it is clear that decisions made by European governments in regards to energy are going to have far-reaching consequences, says Phil Flynn of the PRICE Futures Group.

The International Energy Agency (IEA) became a mouthpiece for the green energy lobby putting out flawed data that has left Europe in a pickle. For years they underestimated demand and inflated energy supply, and gave Europe the impression that some of their pie in the sky ideas about a quick energy transition could be easily accomplished. Yet now the misreporting from this agency can no longer be hidden. as the reality of shortages and now the threat to Europe’s security cannot be ignored anymore.

The IEA admitted that their estimate of global oil supply was off by 200 million barrels, and they admitted that global oil inventories plunged by 600 million barrels instead of 400 million barrels. The IEA blames OPEC plus Russia because as they say they ‘chronically’ fail to meet output targets. Now, they warn that global oil inventories are 255 million barrels below the five-year average and at their lowest level in seven years. On top of that, the agency had to go back and revise upward 15 years of oil demand estimates that they previously underreported, and set the stage for the energy crisis that Europe is in now.

At this point, war has not broken out and Ukraine insists that the US and the Biden administration is hyping the risk. The Wall Street Journal reported that, “US officials are warning that Russia could be about to attack Ukraine. For many citizens in this embattled country, the assault has already begun.

Ukrainian officials said that Russia, which has positioned more than 100,000 troops around three sides of Ukraine, is stepping up a destabilization campaign involving cyberattacks, economic disruption and a new tactic: hundreds of fake bomb threats. Zerohedge reported that during their Sunday phone call Ukraine’s President Zelensky asked Biden to visit Kyiv in person amid continuing White House claims that a Russian invasion is set to happen “any day” now. Saying that major Ukrainian cities are “under safe protection,” Zelensky suggested that a visit of the US president in person would stop the spread of panic and prevent escalation. “I am convinced that your visit to Kyiv in the coming days…would be a powerful signal and help stabilize the situation,” Zelensky was quoted as saying in the call. “We will stop any escalation. The Ukrainian capital, Kyiv, other cities in our country—Kharkov and Lvov, Dnepr and Odessa—are under safe protection,” Zelensky told the US president.

In the US, despite war fears, we know that oil supplies will most likely fall again. There are signs that US producers are trying to respond to higher prices even with the risks posed by the Biden administration’s threats of more taxes and regulations.

World Oil reported that Baker Hughes rig count released Friday shows the United States has added 22 rigs since last week, bringing its total count to 635. This shows an increase of 238 rigs from last year and brings North America’s total rig count to 854. Compared to a record low US count of 244 in August 2020, the rig count is up 160%. World oil says that “Rig counts are also increasing internationally, with Canada adding one to total 219 since last week and other countries adding seven to total 841 since last month, according to Baker Hughes. Canada’s number of rigs have increased by 43 in the past year, and other international rigs have increased by 164 in the past year. The Energy Information Administration data showed oil output will average 12.6 million barrels a day in 2023, an increase from its previous estimate of 12.41 million. The current annual all-time high of 12.3 million barrels a day was set in 2019.

If you are looking for oil from Iran to cool off prices, well not so fast. Despite a report from a Russian official that talks were going well, Reuters reports that “a senior Iranian security official said on Monday that progress in talks to salvage Iran’s 2015 nuclear deal was becoming “more difficult” as Western powers only “pretended” to come up with initiatives. The indirect talks in Austria between Iran and the United States resumed last week after a ten-day break. Delegates have said the talks have made limited progress since they resumed in November after a five-month hiatus prompted by the election of hardline Iranian President Ebrahim Raisi.

Natural gas is popping. EBW reports that over the weekend, a moderately bullish weather shift recovering almost a third of last week’s losses, a three-week high in LNG feedgas demand, and a flattening production trajectory may allow the front-month to retest resistance north of $4.08/MMBtu early this week. Another leg lower remains the most-likely price scenario as a mild late February and early March compound an end-of-March storage trajectory north of 1,425 Bcf.

Further declines, however, are likely to feature choppy trading as near-term NYMEX contracts grind lower. Brimming geopolitical tensions with Russia and Ukraine sent oil soaring on Friday to an eighth straight weekly gain. While underlying fundamentals remain robust and near-term technical point higher, a retracement lower after the extended rally may occur at any time.

Obviously, the upside risk for oil and products is still high. Yet, we could get a break after the extended run. You should be able to buy the break.

Learn more about Phil Flynn by visiting Price Futures Group.