Oil prices are waking up to the reality that underinvestment and Biden’s fixation on so-called leadership on climate change, will leave the globe under-supplied with oil and gas. The market is starting to price in the coming energy crisis and the future impact that it will have on people's lives and economic growth. Joe Biden held the first bilateral meeting of his presidency Tuesday with Canadian Prime Minister Justin Trudeau and said the US would lead on climate change to set an example. Yet we know that a so-called example will come at the expense of American workers and will favor China who continues to expand massively its use of fossil fuels as the U.S. goes into retreat.

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Biden will also keep the pressure on the U.S. shale industry already under pressure from a year of weak prices, lack of capital investment as well as the fear of frivolous lawsuits from governments and municipalities surrounding climate change. The Hill reported for example that city officials in Annapolis, Md., filed a lawsuit Monday accusing 26 companies, including Exxon, Shell, and the American Petroleum Institute, of failing to warn state officials about the dangers posed by man-made climate change. The lawsuit, filed in Anne Arundel County Circuit Court, alleges that the named companies knew "for decades that climate change impacts could be catastrophic, and that only a narrow window existed to take action before the consequences would be irreversible," yet failed to warn relevant state officials.

Also, the Texas energy crisis may permanently take off US shale production for the foreseeable future. Oil trader Trafigura says that they believe that 5 to 10% of our oil production that was shut down due to the crisis may not come back online ever. They also predict a permanent loss of 2.0 million to 2.5 million barrels of US refining capacity. That means average Americans and businesses will be facing sharply higher gasoline and energy prices.

The American Petroleum Institute did not yet show the full impact of the Texas disaster. The API reported a surprise 1.026 million barrel increase in crude supply. Part of that increase was a sharp rebound of 2.783 million barrels in the Cushing, Oklahoma hub. The APOI did show a very large 4.489 million barrel drop in distillate and a modest 66,000 barrel increase in gasoline supply. The market initially sold off at the number but now is rebounding because the trade knows that in the coming weeks we will start to see the impact of the production and refining shutdowns. 

Oil is testing its major long-term resistance near $63 a barrel. A breach of that number should open up a long-term oil market break out. I have been warning that when oil prices were cheap we were setting the stage for this burgeoning oil supercycle. People who thought that oil supercycles would be impossible in the future because of shale are getting a lesson in the importance of oil investment as well as government policy! The Biden administration plans to make oil and gasoline expensive and rare is ahead of schedule. The problem is that it is coming on the backs of the American worker. It is coming at the expense of US opportunity and jobs and a policy that is going to give China back an economic edge. U.S. manufacturing will be strained in the coming months but China will expand using good, old fashion fossil fuels. 

Hopefully, you have headed my warnings, and you're hedged. At least there will be some amazing opportunities in the commodity space. The risk is for another upside spike is still high. We are still in a buy the breaks mode.