It Could Be a Long, Cold Winter

Russia plans to keep the Nord Stream pipeline closed, saying opening it would be unsafe with just one turbine and blaming Western sanctions for blocking access to replacement units. Leaders of the European Union reacted over the weekend, with Germany planning to keep two nuclear plants online and France’s Macron pledging to share gas with Germany if necessary. Unfortunately, the U.S. administration’s ongoing war against American oil and gas production will not allow us to come to the free world’s rescue.

The global energy crisis has taken another turn for the worse, now impacting much of the world’s economy. Supplies remain scarce and expensive, triggering knock-on effects throughout many industries that are already dealing with soaring inflation. The near-term outlook isn’t looking any better as companies and consumers prepare for a coming recession that is likely to be made worse by inadequate energy sources to get them through the winter.

Russia’s other contribution to this mess is in Ukraine, where Zaporizhzhia, the largest nuclear plant in Europe, has also been fully disconnected from the electricity grid due to shelling from Russian forces.

European benchmark Dutch TTF natural gas futures jumped as much as 35 percent in a single day early this month after Russia said the Nord Stream pipeline would remain shut beyond what had been billed as a three-day maintenance halt. The Kremlin had originally insisted that the closure was due to a leak but now says supplies will be suspended until the “collective West” lifts sanctions related to their war on Ukraine. Moscow will also retaliate if the G7 imposes a price cap on Russian oil.

EU energy ministers gathered for an emergency meeting in Brussels to discuss a coordinated response to gas futures surging more than 280 percent year to date. More stimulus? Rationing? Price caps? Trading suspensions?

Oil futures for West Texas Intermediate climbed back towards $90 a barrel after OPEC+ recommended a 100,000 barrel-a-day production cut starting in October, amid fears over demand amid a global recession. The decision will have little effect on actual production as the group’s output was already running well below that target. The psychological impact, however, is clear. The small cut effectively reverses the 100,000 barrel daily increase that OPEC+ previously said it would add to the market after President Biden’s recent visit to Saudi Arabia.

Domestically, California declared a power emergency as summer heat lingered into September and expects an all-time record demand to continue; the heat wave has pushed temperatures past 110 degrees Fahrenheit, which threatens to stretch the state’s electricity system to its limit. 

That’s not all. Plummeting water levels from drought and overuse threaten many countries (including the U.S.), weighing on hydropower as well as nuclear power that needs water to cool reactors.

The S&P 500 started the month by posting another week of hefty losses, falling 3.29 percent for the five-day session. The benchmark index has now posted a three-week losing streak after a four-week run of gains. Muted investor sentiment carried on from the previous week after the U.S. Federal Reserve Chair (at the Jackson Hole symposium) indicated that policy-makers were committed to raising rates in order to combat inflation.

A trend of good-news-is-bad-news trading also weighed on the S&P 500, as economic data released during the week supported the case for a hawkish Fed. Investors also digested job-openings data that exceeded consensus expectations, a retooled ADP report that showed that fewer jobs were added in August than had been expected, jobless claims figures, a stronger-than-expected ISM manufacturing purchasing managers index readout, and an unexpected increase in the unemployment rate.

Will the Biden administration do anything to alleviate at least this self-inflicted energy problems? Not likely: According to The Wall Street Journal, the U.S. under Biden has leased fewer acres for oil and gas drilling offshore and on federal land than any other administration in its early stages, dating back to the end of World War II.