The GERM Report

Risk level: Yellow

RED: Severe (+/- 4%) ORANGE: High (+/- 3%) YELLOW: Elevated (+/- 2%) BLUE: Guarded (+/- 1%)

THE BOOSTER SHOT

-Renewables could shield the US economy

-But they may lead to declining global leadership

President Joe Biden managed to upend the US energy sector by rejoining the Paris climate accord and nixing the long-awaited Keystone XL pipeline. His nominees for energy and transportation secretary, meanwhile, are both vocal supporters of renewable energy. With “peak” whatever making a comeback, we wonder just how pivotal the shift will be. And whatever the outcome, we’ve seen that the dream of energy independence was just that – a dream.

Crude oil prices barely moved last week. Treasury Secretary-nominee Janet Yellen moved the needle early in the week by calling on lawmakers to go big on a new stimulus package. That was offset by a late report from the EIA showing a 4.4 million barrel build in US commercial crude oil inventories. In the end, the price for Brent crude oil moved up by only a half percent to finish the week at $55.41 per barrel.

Biden wasted no time with the presidency, signing executive orders to rejoin the Paris climate deal and axe the Keystone XL oil pipeline almost immediately after taking the oath of office. Biden since announcing his bid for the White House has embraced an ambitious energy agenda that seeks net-zero emissions of greenhouse gases no later than 2050. And he’s selected Cabinet level officials to help him realize those goals.

During his confirmation hearing, former South Bend Indiana Mayor Pete Buttigieg said “all options need to be on the table” when considering funding for the nation’s infrastructure, including an increase in the federal gasoline tax, though that was later walked back by an aide. He also fielded questions on his stance on crude oil pipelines, which would fall under his authority through the Pipeline and Hazardous Materials Safety Administration. Later, he expressed support for being a steward of the environment.

“When the books are written about our careers, one of the main things we’ll be judged on is whether we did enough to stop the destruction of life and property due to climate change,” he said.

On Wednesday, we’ll hear from former Michigan Gov. Jennifer Granholm, Biden’s pick to lead the energy department. It’s been so long since Granholm held public office, some 10 years ago, that officials at oil company Enbridge told us that nobody was still around when Granholm was Michigan’s governor. She has, however, been a vocal advocate for renewable energy, as well as a vocal advocate for the job of energy secretary. Pitching herself for the job in the Detroit News, made a case for renewables as a central point of economic recovery.

“The economics are clear: The time for a low-carbon recovery is now,” she wrote.

Granholm will likely draw on her experience on the board of directors at companies that either favor or had a direct role in cleaning up the environment with alternative energy. She was intimate experience, meanwhile, with Detroit’s auto sector, a sector that’s already looking to batteries as a source of power over gasoline.

Biden later in the week put a brief moratorium over oil and gas leases and drilling on federal lands. All that in less than a week was clearly enough for groups such as the American Petroleum Institute. The lobbying group said Biden’s fracking ban was nothing more than an “import more oil” policy that would expose the US economy to risks from “foreign countries hostile to American interests.” That stands in stark contrast to claims of energy independence during the Trump administration. That ambition was highly unlikely given the interconnected nature of the energy sector and the oil market. Oil prices increase on international events, not just US events, so independence is a myth.

But can independence come from renewables? For oil and gas, the Cold War is alive and well and running through a pipeline – or perhaps an LNG regasification facility – somewhere in the world. Case in point would be the second leg of the Nord Stream natural gas pipeline. The first branch was seen as a boost for European energy security because it avoided politically-sensitive territory in Ukraine. With the rise of US LNG, however, the second leg is suddenly a concern because overtly it leaves the Europeans dependent on Russian gas, but tacitly threatens US market share. Unlike oil and gas, solar panels and wind turbines aren’t exposed to geopolitical risks. But national interests are national interests. If the United States were to isolate through some utopian independence, it would be remiss to abandon its role in the international community. Oil or not, if the United States is not invested in the political developments of other nations, another power will move in to take its place.

We have a handful of speeches on tap from European banking officials and some manufacturing data in the United States that could move the needle on oil prices this week. On the supply side, we’ve already seen Iran boasting that it could return to a pre-sanction level of production relatively soon. Elsewhere, we would expect to see some early kickback on Biden’s decision on fracking and on Keystone XL to influence the market. A divided Republican Party, meanwhile, would prove supportive of the prospects of new fiscal stimulus given the quick move by some in the GOP to distance themselves from the me-first policies of the former president. We’re expecting another period of calm for the last full week of January, estimating crude oil prices will move by at least plus or minus 2% on the week.