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Oil prices are back on the rise as supply fears are overtaking recession fears once again. The question we’ve kept asking is if the demand is so bad then why are supplies so tight and now the market’s starting to ask those same questions.

Europe is crafting a plan to conserve energy as Europeans face bleak prospects going into winter as a result of their failed fanciful green energy transition. Europe is already facing the real prospect that Russia will use natural gas and oil as a weapon against the continent and is crafting a plan to cut energy use and enforce rationing across the EU block.

Last Week EU President Ursula von der Leyen released a 5-point plan that still might not be sufficient if Russia cuts off supply. The first one was demand reduction. The second step is: Diversify away from Russian fossil fuels. The third step is “massive investments in renewables.” Sure! Why not double down on a bad policy that created the worst energy crisis in history? The other courses are the old reliable price caps and windfall profit tax both of which are short-term band-aids it will cause much bigger problems in the future.

Yet despite the clear evidence that bad energy policy in Europe is causing a major crisis, the Biden administration continues to want to double down on its anti-fossil fuel policies. There is clear evidence that their proposed transition may be impossible to make happen. Their ideology will not allow them to see what a foolish and dangerous path this puts the country and the world on.

The oil prices are recovering from the Labor Day holiday. The drop in oil prices has a three-day holiday check whether it’s Thanksgiving, Christmas, or Juneteenth. You name it, oil prices almost always sell off right around 3 day holiday.

Oil is getting a reality check even though we could see a big building inventory this week. The Strategic Petroleum Reserve announced that they released 8.4 million barrels from supply last week which puts the SPR inventories at 434.1 million barrels and which is the lowest since October of 1984. Yet even this supply surge may not cool off the energy rally too much because winter is coming, and winter fuels are disturbingly low. When you look at distillate supply around the globe it is in very tight supply. Europe is in desperate need of it and in the United States in the northeast supplies are well below normal and not very comfortable going into winter.

John Kemp at Reuter writes that “northwest Europe benchmark gas futures contract for deliveries in January 2023, the heart of next winter, has fallen to less than €200 per megawatt-hour from a peak of €345 in late August. Higher inventories in seasonal storage have reduced the probability of stocks running out. Plans for significant voluntary and mandatory reductions in gas and electricity consumption and the increasing probability of a region-wide recession will also lessen the pressure on stocks in the event gas supplies from Russia are disrupted.

The Department of Energy is also warning that Northeast distillate supplies are at the lowest level since 2022. The EIA says that “Distillate stocks in U.S. New England and Central Atlantic states fall too low levels.” Distillate fuel oil stocks at refineries, bulk terminals, and natural gas plants in New England states were the lowest in several years as of June 2022, according to our latest Petroleum Supply Monthly (PSM). Among the six states in New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and  Vermont), distillate stocks ranged from 90% less than the five-year (2017–21) average in Vermont to 32% below average in New Hampshire at the end of June 2022.

Distillate stocks were low in Central Atlantic states, too. Of the region’s five states (Delaware, Maryland, New Jersey, New York, and Pennsylvania), distillate stocks ranged from 70% less than the five-year average in Maryland to 15% above average in Delaware. These monthly stocks exclude those held within the Northeast Home Heating Oil Reserve (NEHHOR) and New York State Strategic Fuel Reserve, which collectively can hold more than 1 million barrels of distillate fuel oil. NEHHOR was established in 2000, and stocks from the NEHHOR have only been released once, in November 2012, following Hurricane Sandy.

Despite more mild weather and strong production, natural gas prices are looking at the bigger picture over winter where we can expect higher prices. The market is also anticipating the reopening of the Freeport LNG export facility at some point and assumes that the EPA will back off pressure on other LNG export terminals.

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