Gold Turns Black

We associate gold with a golden hue; at times, we have even spoken of green gold, but now gold is turning black. Black gold, or oil, is currently in the spotlight due to the repercussions of recent geopolitical events on the markets.

U.S. producers and their shareholders are anxious and pressuring their government for an increase in production, given the significant rise in barrel prices. Joe Biden's decision to restrict Russian crude oil purchases has accelerated this trend. Ensuring crude oil supply requires negotiations with other producing countries and, evidently, at a different price. Bringing crude from different sources to the market takes time. It is not a matter of just a few days. OPEC claims it cannot replace the volume of Russian production in its global calculations due to the lack of capacity from other members. However, some producers might disagree. We are witnessing an energy chess game being played in the Arabian Peninsula.

The oil industry has been under significant pressure and a downward trend due to emission reduction policies. With the rise in barrel prices, investors see an opportunity to start drilling again and take advantage of the economic situation. At the bases, there has been an increase in preparation and reactivation activities for exploratory and drilling units.

Oil structures in the North Sea

The price of oil has reached $140, then moderated, but continues on an upward trend, which consolidates as days pass and new news from the conflict arrives. In the stock markets, long positions are consolidating supports; the energy sector is in full swing.

This price escalation brings with it the dreaded inflation and a sharp rise in fuel prices for small consumers. Will we witness a period of economic recession or even stagflation? According to analysts, the key lies in the duration of the Ukraine conflict.

Natural Gas

In proportion to crude oil, the price of gas has increased much more rapidly. There is genuine concern among large consumers, not only about the price but also about ensuring its availability. This leads to extremely high prices being paid for Kwh. Recommendations are even coming from the European Union for citizens to moderate their consumption.

Alternatives

Investors in the Oil & Gas sector are aware that the lack of investments over the past five years is now slowing down a quick response to meet current crude oil demand in the markets, consequently leading to a loss of profits at a very opportune moment. The U.S. has banned imports of Russian crude, coal, and natural gas, and the International Energy Agency has estimated a production deficit of 1.3 million barrels per day.

Oil shale

Europe has now, with greater urgency, launched efforts to boost the renewable sector. In Germany, the possibility of using nuclear energy to avoid an energy emergency is back on the table. However, it seems that this proposal will not prosper, and the three remaining plants in the country will be dismantled. The U.S. shows interest in Venezuela and its crude reserves, not ruling out the arrival of Iranian crude if nuclear agreements are reached beforehand.

U.S. shale operations could be resumed. Crude oil orders from Canada have significantly increased. 60 million barrels from the U.S. national reserve are being released, and there is an effort to persuade Saudi Arabia, the only OPEC producer with significant production capacity, to increase the number of barrels per day. Coal export centers are being reactivated, including those in South Africa, with all that this implies for the environment.

An uncertain landscape is solidifying new drilling and reactivation projects for offshore units, as well as mining. However, what begins today in this sector will not have an impact or result for at least 12 months.

Geopolitics is setting the pace for the markets. Everything has a solution with oil at $150..., after its historical peak of $147 in 2008 and $200 if we adjust for inflation.

Drilling field

Macroeconomic Situation

 Inflation in Spain reached 7.6% in February, a figure that does not include the current energy impact, so we will likely reach double-digit percentages in the next statistics. Bank of America analyses predict that if the current situation continues, a crisis similar to that of the 1970s with oil prices will occur.

Despite the prices, uncertainty is leading stock markets to move away from commodities and oil. Investors are seeking safe assets, those classified as essential goods. Global stock markets are trending towards goods dedicated to basic consumption, regardless of the macroeconomic situation. Pharmaceuticals, large tech companies, food sector manufacturers, major restaurant franchises, and companies focused on energy self-sufficiency are all seeing this trend. This stock market behavior is evidence of the volatility and insecurity currently present in the markets. Even those that have been traditional “safe havens” do not inspire investor confidence.

The associated approval of clean energies[/caption>

Clean Energies

 This crisis is demonstrating how important clean energies are and the urgent need for their development in all their forms to ensure energy security. We face two vital challenges: meeting global energy needs and controlling CO2 emissions.

The war has skyrocketed commodity prices, especially those with significant implications for the energy transition. Russia, apart from crude and gas, also produces other raw materials necessary for the development of clean energies, such as high-quality nickel used in battery manufacturing. Bank of America estimates that this situation could lead to a 25% increase in battery prices. Russian aluminum is also part of wind turbines, and its price in the markets continues to rise, along with turbine production.

Thus, the European Commission has announced a plan to eliminate dependence on Russian gas by 2030, thanks to the accelerated deployment of more clean energies, such as wind and a strong commitment to the use of renewable hydrogen.

I see no other way out of this whirlwind than the urgent development of renewable energy alternatives as the only path to avoid being late to the future.

Photos: provided