Energy Report: Fall Out

Suddenly, talking about a global energy crisis doesn't sound crazy anymore. Years of underinvestment in the fossil fuel sector driven in large part by governments that discouraged the production of fossil fuels in favor of a quick transition to alternatives has now created a situation that has put the global economy at risk. While the green energy lobby kept telling us that their fuels are reliable, the truth is they can’t compete with the reliability of fossil fuels. The transition must be based on reality and not pie in the sky platitudes. 

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There was more evidence of that overnight as China’s gross domestic product grew 4.9% in the third quarter from a year ago, the National Bureau of Statistics said Monday. That missed expectations for a 5.2% expansion according to analysts polled by Reuters. Industrial production rose by 3.1% in September, below the 4.5% expected by Reuters as well.

Oil prices are being driven higher because of concerns about fuel switching shortages to coal in China along with sharply higher prices for natural gas is making dirty old oil looking more attractive at keeping the lights on. Reuters reported that China's power woes look set to intensify as coal prices rose to a record on Monday following data showing the supply of the fuel fell in September adding to concerns that domestic output may be unable to meet surging electric generation demand.

China, the world's biggest energy consumer, has enacted measures to increase the output of coal, which fuels nearly 60% of its power plants. Government data on Monday showed that those steps will take time even as power demand surges to meet post-COVID-19 industrial needs. Coal output in China was 334.1 million tonnes last month, down from 335.24 million tonnes in August and 0.9% lower from a year earlier.

The energy shortage is also impacting the European economy. Factories are paying sharply higher prices for natural gas and that is impacting the prices on other commodities across the board. As the energy crisis creeps into commodity prices and corporate profits more and more, it's becoming apparent that if this winter is a particularly cold one, we’ll see significant challenges keeping people warm with the lights on and keep factories going at the same time.

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