Europe caps oil prices

Russia will kneecap Europe. Institutional stupidity continues unabated

The European Union voted to put a price cap on Russian oil thinking they could put pressure on Russia while reducing their own energy costs. Typical of left-wing leaders, they seem to have no idea how markets work. Russia’s response is likely to be to simply stop shipping oil to the EU. Russia’s economy remains in good shape and there are plenty of non-EU customers for Russian oil & gas including China, India, Africa and perhaps some South American customers. The EU attempt was to curb insurers from insuring ships carrying Russian oil as if that would prevent shipping. Good luck wiht that. Many shippers will self-insure, many will ignore the edict, and Russian oil will find its way to the mid-East who will use Russian oil for their domestic refineries and ship their own oil to markets.

JP Morgan can see oil prices get to US$380 a barrel if Europe persists. Once again, European leaders show their propensity to shoot themselves in the foot with policies that not only created the energy shortage they are hamstrung by but also to make it worse.

For its part, Germany just announced a US$65 billion support package for its burdened citizens to be funded by a “windfall” profits tax on energy companies including utilities who supply “renewables”. Tell me again how increasing taxes on the companies you hope will expand output to ease the energy crisis will encourage them to build additional capacity?

I am always amazed how left-leaning administrations believe they can order the world to fall into line with their ideology, omitting the reality that people and companies will protect their own interests. Incentives work. Edicts do not. Leon Trotsky gave them a good shot and got shot.

For energy investors, hold tight. The tailwinds for oil & gas investments seem robust and the downside risks from an economic collapse likely to both short term and manageable and followed by an even more severe energy shortage in the inevitable economic recovery.

I am long CNQ, TOU, CPG, PEY, BIR, SDE, BNE, PNE, BTE, VET and a few other energy names to round it out. It has been a great ride so far and I have no plans to get off before a more profitable destination

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