On Friday, Brent crude oil prices jumped more than 2% as Russia cut its oil production again, sending a message to the West.
Here’s Bloomberg:
Russia plans to cut its oil output by 500,000 barrels a day next month, following through on a threat to retaliate against western energy sanctions and sending oil prices sharply higher.
The move threatens to renew turmoil in the oil market, which had so far taken disruption to Russian supplies in stride.
It further tightens supply constraints from OPEC+, which Saudi Arabia had already led into a 2 million barrel-a-day production cut last year in an effort to buoy prices.
Delegates from the group signaled they won’t take any action to fill in the gap created by Russia.
For context, if Russia carries out its planned cuts, those 500,000 missing barrels equate to about 5% of its January output.
And with OPEC+ signaling it’s not willing to make up for the missing production, the supply gap will remain for the foreseeable future.
This is just one reason why legendary investor Louis Navellier sees oil prices headed much higher as we move deeper into 2023.
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Before we get to oil prices, let’s look at the war in Ukraine.
Over the last six months, I’ve read various headlines suggesting that the Russian offensive was running out of steam and couldn’t continue its aggression for much longer… that Russian President Vladimir Putin was going to be ousted by members of his own party… and that Ukraine’s fierce resistance would result in Russia agreeing to some sort of agreement to end the conflict.
None of that has played out.
Instead, tensions have intensified as the West has promised to send additional larger-payload military armaments to Ukraine, while Russia has saber-rattled about nuclear weapons and stepped-up its assault on Ukrainian territories.
From the regional governor of Ukraine’s Luhansk province, Serhii Haidai, last Friday:
The situation is deteriorating, the enemy is constantly attacking, the Russians are bringing in a large amount of heavy equipment and aircraft.
And news this morning reports that NATO Secretary-General Jens Stoltenberg says there is “no sign” that Putin is preparing for peace.
Last week, Louis sent an internal email to a few department heads here at InvestorPlace, commenting on the worsening situation in Ukraine:
There is no doubt that NATO is effectively in a proxy way with Russia after both Germany and the U.S. approved new tanks.
The upcoming Russian spring offensive will likely be pivotal and decisive.
Louis says that we should anticipate additional Western sanctions on Russia, which means Russia will likely have to shut down even more of its crude oil and natural gas wells as we head toward spring and summer.
But as we saw at the top of this Digest, OPEC+ isn’t stepping in to fill the production gap.
That’s going to create upward pressure on prices.
For more on the overall situation, let’s jump to last Friday’s Special Market Podcast from Louis’ Platinum Growth Club service:
So, let’s just step back at look at what’s going on in the energy patch.
We are no longer releasing from the Strategic Petroleum Reserve. That was a million barrels per day for 200 days.
Russia had already cut one-million barrels per day. Now, they just added another half-a-million barrel cut to that.
That’s two-and-a-half million barrels per day off the market. So, that’s big.
Now, you have the seasonal pressure because demand goes up in the spring.
So, it’s looking awfully-good for our energy-related stocks. I am more confident on this energy bet than anything.
We are going to have $100-per-barrel crude oil in the upcoming months.
In peak summer demand, we’re going to have $120 per barrel for Brent sweet crude.
So, your energy stocks are your oasis.
But what if the unexpected happens and global leaders find a way to negotiate a cease-fire between Russia and Ukraine?
Louis still sees higher crude prices:
I cannot envision any scenario where crude oil prices do not rise in 2023.
Even if the war between Russia and Ukraine ends in the upcoming months, the sanctions against Russia are expected to remain, since Ukraine and NATO will be demanding war reparations from Russia.
Oil prices have enjoyed a shot-in-the-arm recently thanks to optimism surrounding the Chinese economic reopening and the anticipated impact on oil demand.
From MarketWatch on Friday:
The gains have been driven in part by hopes surrounding the recovery of China’s economy after the lifting of COVID restrictions in December.
In a note dated Thursday, analysts at Goldman Sachs said they see “the China comeback as the most persistent driver of the outlook” for oil.
The 1.1 million barrel per day rise in China demand this year “should push oil markets back into deficit in June, expose structural underinvestment, boost prices, and lead OPEC to reverse its November 2022 production cut” in the second half of 2023, they said.
Europe was supposed to collapse into chaos this winter due to an energy shortage, as well as the resulting price spikes.
Why didn’t that happen?
Unseasonably warm weather.
From Scientific American a few weeks ago:
Europeans have feared for months about freezing this winter because of an energy crisis stemming from Russia’s war in Ukraine. They were not expecting a heat wave.
On the first day of the year, weather stations across Europe saw their highest January temperatures of all time.
Nearly a thousand records fell in Germany alone in the first few days of the year, according to climatologist Maximiliano Herrera, who tracks extreme temperatures around the world. Thousands fell elsewhere across the continent…
At least 15 countries across Europe saw record-breaking temperatures in the past week.
The hardest hit areas stretched from France to Germany, Belgium, and the Netherlands. Records also fell in Luxembourg, Poland and Belarus.
In short, warm weather has staved off a massive energy crunch.
And if so, what does that mean for the energy needs related to keeping cool?
Here’s The Healthy Journal on what to expect this summer:
[Summer 2023] is forecast to be one of the hottest years on record and even warmer than 2022, experts have said.
Met Office scientists estimate that 2023 will be the 10th consecutive year in which global temperatures will be at least 1C above pre-industrial levels, measured as the period from 1850 to 1900.
And here’s more from The Guardian:
The return of the El Niño climate phenomenon later this year will cause global temperatures to rise “off the chart” and deliver unprecedented heatwaves, scientists have warned.
Early forecasts suggest El Niño will return later in 2023, exacerbating extreme weather around the globe and making it “very likely” the world will exceed 1.5C of warming. The hottest year in recorded history, 2016, was driven by a major El Niño.
While we sidestepped a brutally-cold winter, odds are we won’t escape a blistering summer. And even though cooling a home doesn’t require as much energy as heating a home, if the world suffers a brutal heat wave this summer, it’s going to mean a sharp uptick in energy demand.
At a minimum, it will put a floor under global energy prices.
Bottom line: While no one can predict exactly how high, oil prices are headed north from here. Top-tier, well-run energy companies are a good bet for your portfolio.
To learn more about how Louis is playing this opportunity in Platinum Growth Club, click here.
Have a good evening,
Jeff Remsburg
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