The world is finally understanding

Everyone wants to live in a world where we have unlimited, cheap and clean energy but the path there isn't in cutting off production, it's in investing in technology.

Now, the bad decisions around blocking drilling, exports and pipelines are coming to roost and it's consumers who will be paying the bill. It's something I've been warning about for a year:

I think a great trade is setting up in oil because the lack of investment is going to leave a big supply deficit in the years ahead.

European benchmark TTF prices are up another 20.5% today.

The chart would be comical if it didn't mean that people will have to choose between paying the rent or the heating bill this winter.

TTF gas

North America still has abundant supplies but drillers have lost money for so long that they're reluctant to drill, and share prices are still phenomenally depressed with the market loathe to believe this will last. And banks still won't lend to E&Ps.

With all that, US Henry Hub gas is up over 10% today to $6.42/mmbtu. That's the highest since 2014 and the high that year of $6.49 is at risk (it was brief spike on cold weather). Beyond that we're back to 2008 levels in the pre-fracking era.

I don't know where this ends but daily I see people saying 'this is the top' and usually that's a sign that it isn't the top.

henry hub

The risk ahead is that oil is next. OPEC+ has spare capacity but I noted earlier today that US jet fuel demand is surprisingly high and US gasoline demand hit a weekly record this summer. That's evidence that demand will be higher than expected coming out of the pandemic (eventually). Meanwhile companies have no interest in drilling new wells because their shares are so cheap and the market will hammer them if they do.

Here's a Desjardins note on oil today that caught my eye:

Equity valuations continue scraping at, or near, record lows. Regardless, the free cash flow story is coming home to roost in 2022, when most producers will have completed their balance sheet cleanups, enabling them to accelerate returns to shareholders. We would be buying producer equities with reckless abandon; for the first time since initiating coverage of the sector in 2013, we have Buy ratings on every E&P under coverage.

Update: The close in US gas today was the highest in 12 years