Now Biden and Mario Draghi are talking about bringing back the failed energy policies of the past, raising the ghost of price caps for oil and gas not to mention windfall profit taxes on oil companies, notes Phil Flynn of PRICE Futures Group.

Joe Biden, who claims that he is a capitalist, hasn’t read too many books on the economy. Let me clue him in on how this works: Price caps will eventually lead to shortages and much higher prices, and it happens every time it's tried! Windfall profit taxes will further discourage investment in an industry that is desperately in need of it. This is econ 101.

You show me a price cap and I will show you a shortage. It won’t be too long before we see 1970’s style gas lines and maybe we’ll even bring back those big sideburns, wide ties, and disco music.

This comes as the International Energy Agency (IEA) is warning the world of a major price shock yet is now trying to tell you that things aren’t so bad. Reuters reported that the IEA, in a total reversal from their previous price shock warning, is now saying according to Reuters that, “The world will not be left short of oil even with lower output from sanctions-hit Russia, the International Energy Agency (IEA) said on Thursday, in a U-turn after it predicted a possible 'global supply shock' in March. The IEA, after warning on March 16 that three million barrels per day (bpd) could be shut in from April, lowered that figure for a second time as it noted only one million bpd had gone offline.

Reversing themselves and saying that they are now not worried about a global energy shock is a shock, or maybe not. Perhaps they are laying the groundwork for political cover for the EU as they try to impose sanctions on Russian oil and gas, or maybe they are saying it because they want to tell you that the pain at the pump is nothing to worry about and you should not let it get you down. This comes as we get warnings in the US of diesel shortages and record-breaking gas prices. That will have no impact on you or the economy so no global supply shock. Don’t you feel better?

This of course is the same organization that famously lost 200 million barrels of oil because apparently they had underreported demand and overestimated supply. That major miscalculation was a factor in Europe's over-dependence on Russia for oil and gas supply. The International Energy Agency fed the Kool-Aid to Europe, covering up the real supply and demand figures to make one assume that they could meet demand with green energy sources. That is the big green lie and we’re seeing that is not the case.

As Europe struggles to quit funding Vladimir Putin’s war machine versus keeping the lights on and keeping their economies going, the International Energy Agency wants to tell you that there is nothing to worry about. There isn’t going to be any energy shock. They were wrong last month and everything’s going to be just Hunky Dory. No price shock here, unless you read the fine print.

Maybe we won’t have an oil price shock, but we’re going to have a product price shock. The IEA came out and said that while oil demand growth remains relatively sustained, refinery production has struggled. The IEA is warning of a massive product price dislocation versus crude oil and middle distillates, and increasingly for gasoline, not to mention near record-high refining margins. The IEA says that there are almost universal product shortages caused by depleted and rapidly depleting inventories of transport fuel. Fuel shortages and high prices are starting to curtail daily mobility; they are also pointing to the fact that record refining margins are adding to inflation pressure.

Those product shortages are causing problems here in the United States as major gasoline changes are warning about product shortages on the East Coast. Truckers are already facing record-high prices and this is going to add further stress not only on them but on the global economy as well. Dan Molinski of Dow Jones reported that "One of the US’s largest truck stops, Love’s, said Wednesday it is closely watching its diesel fuel supplies in the Northeast amid growing concerns of industry-wide shortages, but said it has no plans to limit purchases. 'Love’s is monitoring the fluid situation on the East Coast, we have experienced minimal outages during low traffic hours,' Oklahoma-based Love’s Travel Stops said in an emailed statement. 'The company has no plans to restrict purchases of diesel.'"

On Wednesday, the US government’s Energy Information Administration said total inventories of distillates, which is mainly diesel fuel but also heating oil, fell last week to a 17-year low of 104 million barrels, which is 23% below normal. On the East Coast, the situation is even worse. The EIA said distillate fuel oil inventories in the so-called PADD one district that covers the Northeastern states fell by 1.1 million barrels last week to just 21 million barrels, the lowest ever recorded in data going back to 1990.

Part of the problem with the diesel shortage in the United States is the fact that we’ve closed down seven refineries in large part due to the anti-fossil fuel movement which discourages investment in things like refineries. Of course, there is also the fact that we have sanctions on Venezuelan oil and the Russian Ukraine war but at the end of the day, the diesel shortage in the US is a product of the green energy movement which led to underinvestment in the US refining space.

The International Energy Agency is also saying that despite sanctions on oil, Russia’s oil revenue is up 50% this year mainly because of higher prices and secondly because Europe must continue to pay Russia. The EU cannot cut off Russia because of its short-sighted energy policies and the ill-fated green energy transition. This comes as EU gasoline prices jump lower on Ukrainian flows so there is some good news because yesterday Ukraine cut off some supply to Europe.

As far as trading oil, we believe that yesterday’s low could be the low for the foreseeable future. Oil seemed to bounce off key support and double bottom near the lower Bolinger band, which is usually a pretty good sign that the lows are in. Yet after a significant rally above some key moving averages and trend lines, oil prices have pulled back a bit because of concerns about global economic growth and cryptocurrencies. The reality is that we believe the market will become more focused on the tightness of supply and then on the destruction of demand.

On the product side, we’re going to continue to see extreme volatility as we reach record high prices This is why I have been warning for more than a year for the users of diesel and gasoline to be hedged, and get hedged, and stay hedged. The wheels of this product shortage have been turning for some time. While the war in Ukraine has exasperated the situation, the underlying causes of the product shortages started long before this.

We have also stayed bullish on natural gas even though the volatility has been unbelievable. Today we get the Energy Information Administration inventory report. Dow Jones reports that “US government natural-gas data are expected to show inventories rose last week by an amount slightly below average as production levels began to return toward normal after some outages. The Energy Information Administration is expected to report that gas-in-storage levels increased by 78 billion cubic feet, according to the average forecast of 12 analysts, brokers, and traders surveyed by The Wall Street Journal.

Estimates range from increases of 73 bcf to 85 bcf. The average forecast compares with a 70-bcf increase in storage in the same week last year, and a five-year average injection of 82 bcf. A 78-bcf increase last week would mean gas stocks totaled 1.645 trillion cubic feet, 19% below last year’s total at this time and 16% below the five-year average for this time of year.

The market has maintained a bullish inventory deficit compared with averages for many months due to a colder-than-normal winter that boosted demand, and due to relatively low production levels that have slowed further in recent weeks due to freeze-offs, maintenance, and other issues.

Learn more about Phil Flynn by visiting Price Futures Group.