The U.S. Is Reasserting Its Energy Clout

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In his podcast addressing the markets today, Louis Navellier offered the following commentary.

The big news this week is the 10-year Treasury bond has decisively moved above the 4% level. The 2-year Treasury yield is also decisively above 4.9%, so the yield curve remains severely inverted.

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Q4 2022 hedge fund letters, conferences and more


Dot Plop

Minneapolis Fed President Neel Kashkari on Wednesday was asked if the Fed should raise key interest rates by 25 or 50 basis points at the Federal Open Market Committee (FOMC) meeting on March 22nd. Kashkari surprised many when he said that “I’m open-minded about whether its 25 or 50 basis points” and added that “What is more important is what we signal in the dot plot.”

The dot plot is a survey of all voting FOMC members on when the Fed will stop raising key interest rates. Frankly, I like Kashkari’s cautious commentary, but the Fed cannot fight market rates, so if Treasury yields continue to climb higher on persistent inflation fears, then the Fed has no choice other than to follow market rates higher.

The Labor Department announced that weekly unemployment claims declined to 190,000 in the latest week, down from 192,000 in the previous week. Continuing unemployment claims declined to 1.655 million in the latest week compared to a revised 1.66 million in the previous week. Overall, the labor market remains healthy and will not impact Fed policy.

Stale Lineup

Elon Musk hosted Tesla Investor Day on Wednesday and laid out a mission statement called “Master Plan Part 3” to become the largest car manufacturer in the world with an output of 20 million vehicles annually by 2030, up from 1.3 million currently.

Tesla Inc (NASDAQ:TSLA) would have to spend up to $175 billion to achieve its 2030 production goal and that spooked some investors. No matter how ambitious Musk is for Tesla long term, the media and investors seemed to be more interested in when will the Cybertruck be launched, since prototypes are being spotted around Tesla’s Palo Alto headquarters.

Furthermore, the announcement of a new manufacturing plant in Monterrey, Mexico to build a more affordable Tesla was lacking in detail of what Tesla’s new affordable vehicle might be.

The truth of the matter is outside of the Cybertruck, Tesla’s model lineup is getting stale and investors are craving for exciting new models. Electric vehicles (EVs) are fighting high lithium, nickel and cobalt prices and Tesla needs to seriously address this acute shortage since even though Tesla is investing in lithium mining, the high prices of batteries is constraining EV sales globally.

U.S. Energy Clout

I remain convinced that “My Big Energy Bet” will continue to pay off in the upcoming months. The wild winter weather that enveloped much of the U.S. is helping to boost natural gas prices. Crude oil inventories in the U.S. are currently 9% higher than average, so West Texas Intermediate (WTI) prices remain relatively stable until this excess inventory is depleted.

However, Europe and much of the rest of the world run on Brent light sweet crude oil where prices remain significantly higher than WTI crude. The wider the spread between WTI and Brent crude oil, the more money our refiners tend to make.

Due to record natural gas production as well as steadily rising crude oil production, the U.S. is reasserting its energy clout and is helping the world break away from Russian crude oil due to record energy exports. The U.S. exported 1.53 million barrels of crude oil a day in January, with no releases from the Strategic Petroleum Reserve (SPR).

Interestingly, the Energy Department has 26 million barrels approved for another SPR release, but it appears that it may be holding back until the prices at the pump annoy consumers and cause political problems for the Biden Administration.


NATO Proxy War

The NATO proxy war with Russia via Ukraine is dangerous and the anticipated Russian spring offensive is expected to have long-lasting consequences. Russian crude oil output is now down 1.5 million barrels per day and is expected to steadily decline as crude oil backs up in pipelines and forces Russia to cap its wellheads.

Restarting capped wellheads in the Artic is problematic, so it is going to be difficult for Russia to boost its crude oil production as the sanctions on Russian companies spread.

As a result, the spring surge in crude oil prices is virtually guaranteed unless China can miraculously get Russia to stop its spring offensive. Worldwide crude oil demand is now at a record level and will steadily rise in the upcoming months as the Northern Hemisphere warms and seasonal demand picks up.

Other than nuclear war or other shocking events that stop world commerce, I remain confident that crude oil prices will steadily rise in the upcoming months as seasonal demand picks up.

Coffee Beans

Netflix is responsible for 15% of global internet traffic. YouTube isn't too far behind with 11.4 percent. Social media and gaming are the other standout categories, with TikTok, Facebook, Playstation and Xbox creating large amounts of global downstream traffic in 2022. Source: Statista. See the full story here.