Europe's self-inflicted wound deepens

One bad policy decision after another

After weeks of negotiation, Europe imposed a “price cap” on Russian oil in part to sanction Russia for its Ukraine war and in part to cap the amount Europe has to pay for badly needed oil & gas. The fundamental problem Europe faces is a shortage of both commodities. The idea that Russia would keep shipping oil but at lower prices was ludicrous from concept to reality.

How has it worked out? Russian oil exports are dropping like a rock and supplies to Europe are falling, not rising. The fossil fuel shortage in Europe just gets worse.

As far as Russia goes, Bloomberg reports that Russian shipments of oil have fallen 54% since the “price cap” was enacted, reducing world supplies by 1.86 million barrels a day, much of it previously going to Europe.

Instead of getting more oil at a lower price, Europe is getting less oil at any price.

Europe’s “windfall profit tax” on oil & gas companies isn’t likely to engender much of a supply response, so don’t expect Europe’s shortage of oil to end any time soon. There will be an apparent improvement in supply-demand when the expected recession hits Europe, but it will result from lower demand. When the recession ends, as they all do, Europe will be back in the soup - short of oil and facing higher prices yet.

As if the nosebleed prices of natural gas and shortages of oil were not enough for the United Kingdom, the country is facing its worse labor disputes in thirty years. The rampant inflation brought about by institutional stupidity comprising reckless spending and inane “climate emergency” policies that pretend CO2 can cause climate change has seen wages fall well behind the inflation rate an unions become more militant, seeking protection. But protection will be hard to come by, since the government coffers are “tapped out”, industry faces the same inflation as consumers, and the new equilibrium may be inflationary wage gains in tandem with rising unemployment - a return to the “staglation” of the late 1970’s.

A deep recession in Europe will export its problems to North America from which Europe and the United Kingdom purchase much of their imports. U.S. and Canadian economies become collateral damage, exacerbated by the same “climate policy” stupidity infecting Europe but limiting fossil fuel supply increases in North America. Where the natural gas Biden promised Europe will come from without higher production in North America is an interesting condundrum, with lack of pipeline capacity and LNG processing terminals formidable obstacles even if more gas were produced.

It is a good time to own natural gas producers in North America. I like $TOU.TO $BIR.TO $PEY.TO $CNQ.TO $NVA.TO $PNE.TO. Although there are a number of strong American natural gas producers, I think the Biden administration is foolish enough to put a “windfall profits” tax on those companies for political points leaving the field to Canada where the Prime Minister has already ruled out such a tax.