The rally in Crude Oil (CL=F) prices, as measured by West Texas Intermediate (WTI) and North Sea Brent, have generated huge profits and fortunes for the investors who acquired a decent portfolio weighting leading up to the war in Ukraine, explains Bryan Perry, dividend expert and editor of Cash Machine.
It was already a broadly held view that coming out of the pandemic, a synchronous global economic recovery would put upward pressure on oil prices due to the cancellation of the Keystone Pipeline and more stringent federal and state regulations on exploration and production.
In yet another catalyst for higher oil prices, nuclear talks with Iran broke off without an agreement due to Russia’s interference with the negotiations. In addition, the Wall Street Journal reported on March eighth that the “Saudis have signaled that their relationship with Washington has deteriorated under the Biden administration, and they want more support for their intervention in Yemen’s civil war, help with their own civilian nuclear program as Iran’s moves ahead, and legal immunity for Prince Mohammed in the US.”
The crown prince faces multiple lawsuits in the United States, including for his alleged role in the killing of journalist Jamal Khashoggi in 2018.
It is probably sufficient to say that the underlying bid for oil over the near and intermediate term looks very firm. WTI Crude Oil closed at $109.33/bbl. after spiking to $130/bbl. earlier in the week. The issue of any further geopolitical risk of interruption or a lack of new higher supply to the global market could send prices above $150 with the new floor being $100, given the current demand curve and the sanctions on Russian imports.
To this point, the stock market has done an efficient job of pricing in much of the present prosperity in the energy sector; and likely some of the future expectation, knowing that, at some point, demand destruction sets in that slows economic growth altogether.
The biggest impact of high oil prices is on the consumer and commercial transportation industries. Whereas coal, natural gas, and renewables will continue to power electric grids worldwide, until solar, wind, hydro, biomass, and geothermal sources make up a meaningful percentage.
Europe is in a most precarious position regarding a major energy deficit heading into summer and winter, when the demand for cooling and heat is at its highest.
Raman Madar, a design and application engineer at Excool, said, “It's estimated, the electricity generation from coal power plants is 1,023,968 GWh in Europe. This represents 22.9% of Europe's total electricity generation. Gas power plants generate 22.0% of Europe's electricity, with nuclear power plants being most dominant at 25.5%.”