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Oil prices are coming back in pure turnaround Tuesday fashion on hopes that maybe, just maybe, the delta variant of the COVID-19 virus might not be as big a threat to global demand that traders feared just 24 hours ago. The crude oil market closed strong into yesterday’s close, well strong from the lows made after a headline that said the EU would not impose travel restrictions on the U.S. despite the covid surge. That seemed to offset news that China Petroleum & Chemical Corp., the nation’s largest refiner commonly known as Sinopec, is cutting run rates at some plants by 5% to 10% compared with previously planned levels this month according to a report from Bloomberg. From a daily technical support level, if we can maintain the rally, it looks like oil successfully defended the assault of $65.00 a barrel looking more like a solid floor or the number for bears to beat if they are going to be successful in crashing oil further.

RBOB futures seemed to be the most solid petro product as demand stays strong despite covid. Retail gas prices dipped to $3.186 for a national average according to AAA. That is down from $3.19 yesterday which AAA says is the most expensive gas price average of the year as well as $1.02 more than a year ago, a nickel more than a month ago, and two cents more than a week ago. Pump prices fluctuated across the country last week with states seeing as much as a nine-cent jump to a seven-cent decrease. The variation in prices is partly attributed to the U.S. seeing an increase in demand and decrease in stocks, according to the Energy Information Administration (EIA), demand was 2% higher than the same period in 2019, while gasoline stocks are about 1% below.”

As I have written before, while we may see some gas price breaks, under the Biden administration, we are going to be in an era of high gasoline prices. The great energy transition and infrastructure bill will only add to the cost of gasoline and the poor will bear the brunt of these policies. Of course, if you believe the doom and gloom predictions of the United Nations Intergovernmental Panel on Climate Change (IPCC), the organization is known for stretching facts on data, it's predicting that if we don't pay ridiculously high prices for gasoline, the world is going to be in deep trouble.

Already we are seeing the impact of reduced refining capacity that will get worse, not better. That is the view of Phillips 66. Reuters reported that Phillips 66, the fourth-largest U.S. oil refiner, is weighing a broader move into developing battery components for electric vehicles and storage systems, according to top executives, leveraging its own and others’ research as it accelerates a shift from fossil fuels.

Phillips 66, which gets the bulk of its profits from processing oil into gasoline, diesel, and petrochemicals, has become one of the largest supplies of graphite used to make a key component in electric vehicles. It recently formed an “emerging energy” unit to explore new markets for hydrogen and low-carbon fuels. “The U.S. refining business in the future is going to be smaller, not bigger,” Chief Executive Greg Garland told reporters at its headquarters on Monday. No worries at all, that's a good thing because we have to reduce our carbon emissions! After all, around the world the sky is falling, the sky is falling, said Chicken Little! Unless you fall into line the world will end.

The Wall Street Journal has an interesting opinion piece that is a must-read.  “The world awoke Monday after a logy August weekend to some alarming news: The climate Apocalypse is nigh, humanity is to blame, and unless the world remakes the global economy, havoc and death are inevitable. Repent of your sins all ye who enter here. That’s only a mild overstatement of the media’s fire-and-brimstone accounts of the latest report by the United Nations Intergovernmental Panel on Climate Change (IPCC), a collection of scientists and politicians who purport to offer the best evidence on climate change. Prepare for days of reading what a terrible person you are for using a natural gas stove.

The gargantuan report will take time to plow through, but a read of the 41-page “summary for policymakers” and perusal of the rest suggests that there is no good reason to sacrifice your life, or even your standard of living, to the climate gods. Hot rhetoric aside, the report doesn’t tell us much that’s new since its last report in 2013, and some of that is less dire. “It is unequivocal that human influence has warmed the atmosphere, ocean, and land,” says the report in its lead conclusion. But no one denies that the climate has been warming, and no one seriously argues that humans play no role. How could eight billion people not? Adding the adjective “unequivocal” adds emphasis but not context.

The report says the Earth has warmed by 1.1 degrees Celsius since the last half of the 19th century, which is 0.1 degrees warmer than its last estimate. This is not apocalyptic. The five-alarm headlines arise from the predictions of future temperature increases if greenhouse gas emissions, especially CO2, continue to increase. Yet the report’s estimate of “climate sensitivity”—its response to a doubling of CO2—has moderated at the top end. The likely sensitivity range, says the report, is 2.5 to 4 degrees Celsius higher than in the late 1800s. The likely range was 1.5 to 4.5 in the 2013 report. The new report offers five climate scenarios based on estimates of CO2 emissions. The intermediate scenario’s “best estimate” is a 1.5-degree increase by 2040 and a range of 2.1 to 3.5 by 2100. This is a highly speculative estimate on which to bet the U.S. economy.

The biggest difference is the new report’s direct linkage of warming to catastrophic weather events such as hurricanes, severe heat waves or rain events, drought, and so on. The summary says this is based on “new methodology” and evidence, which means computer models. We await what independent climate experts say as they dig into these models. But we know climate models are far from perfect, which explains the varying “confidence” levels attached to the report’s predictions. Steven Koonin, the scientist, and former Obama official devotes an illuminating chapter to “many muddled models” in his recent book about climate science, “Unsettled.” The report also downplays some of the disaster scenarios you read about. It has “low confidence” that the Antarctic sea ice will melt. It says it is likely that tropical cyclones have increased around the world, but there is “low confidence in long-term (multi-decadal to centennial) trends in the frequency of all-category tropical cyclones.” Keep that in mind when the next hurricane becomes proof in the press of climate catastrophe.

Even the report’s prediction that warming oceans will melt Arctic sea ice doesn’t sound like a scene from “Waterworld.” The “Arctic is likely to be practically sea ice-free in September at least once before 2050” under the five scenarios. Only once in 29 years, and not the rest of the fall and winter? Further thawing of the permafrost is said to be likely but how much or to what effect is uncertain.

Keep in mind that the IPCC report is a political document. It is intended to scare the public and motivate politicians to reduce CO2 emissions no matter the cost, which by the way the report summary never mentions. No less than Al Gore admitted this on PBS in October 2018 when the IPCC issued an interim report: “The language the IPCC used in presenting it was torqued up a little bit, appropriately. How do they get the attention of policymakers around the world?” Torqued up is right. The U.N. Secretary-General called the new report a “code red for humanity.” And someone at Reuters wrote this sentence: “Further warming could mean that in some places, people could die just from going outside.”

If they believe this, the policy response has failed miserably. Politicians have spent trillions of dollars subsidizing renewable energy with no effect on climate. Nuclear power, which would sharply reduce CO2, is taboo among the greens. Innovation in developing low-cost natural gas which substitutes for coal may have done more than any government policy to reduce U.S. emissions. Yet Biden wants to crush the gas industry with regulation.

The IPCC report doesn’t justify putting the U.S. economy into the hands of the government. A sensible climate policy will continue to monitor trends while allowing a free economy to find solutions and build the wealth that will allow for adaptation and amelioration if the worst happens. This lacks the drama of the Apocalypse, but it will better serve the world.