People who thought Biden’s obsession with electric cars was the future of the US economy had better think again. Yesterday the stock market surged after President Donald Trump made a move to assure us that the United States is the top player in the artificial intelligence space. Instead of wasting billions of dollars on charging stations that were never built partly because there was no demand for them and partly because of the diversity equity inclusion rules that had to be fulfilled before you could build them, President Trump announced Project Stargate.
Project Stargate is what the President calls the largest Artificial Intelligence “AI” infrastructure project ‘in history”. It’s a joint venture between Softbank (OTC: SFTBY ), OpenAI and Oracle (NYSE: ORCL ) worth $500 billion and is an acknowledgement that the future of the global economy is AI. If you want to lead the globe you have to lead with the amazing technology that will transform not only the global economy but perhaps eradicate disease and cure cancers and literally help us reach out to the stars and help us reach the outer limits of our galaxy.
This announcement highlights the stark contrast between President Trump and Biden. Biden’s belief that windmills and electric cars were our future as opposed to President Trump who realizes that artificial intelligence is going to be what transforms the globe over the next century. It reminds me of the old commercial where the guy invested in a boom box instead of investing in his friend’s computer business in the garage. President Trump gets it, Biden did not.
That is why President Trump declared an ‘energy emergency’ in this country. The US energy infrastructure is woefully unprepared to meet the energy demands of artificial intelligence. This transformational technology is going to require all energy sources on the deck to meet the incredible demand that the future is going to command. From an energy viewpoint that means extremely strong demand for everything from oil to natural gas , nuclear and yes, even wind and solar. At the same time, there will be strong demand for commodities like copper , zinc, steel, rare earth minerals, oil and gas. And because God shed his grace on America, we have so many of the components at home that we need to power this future that can improve the quality of the lives of almost everyone on the planet. Of course, we must choose to do so.
The billions that the US government is putting in with the people that know AI like SoftBank (TYO: 9984 ), Open AI and Oracle is a small down payment and a lot more effective than the $10 billion a year we were paying to the global governments for the Paris climate accords. Fox Business reports that the initial investment for the project will be $100 billion, with plans to expand to $500 billion over the next four years. The first data center built under the initiative will be in Texas, and it will eventually expand to other states.
In fact, investment in artificial intelligence may actually help us find a better way to power the globe and reduce greenhouse gas emissions at the same time. Sometimes you have to think big and not think small.
In oil prices, we got our traditional three-day holiday weekend sell-off. Almost every holiday weekend such as Thanksgiving or the Martin Luther King holiday we see oil prices pulled down more often than not.
Part of the sell-off was due to the fact that President Trump seemed to leave some wiggle room when it came to sanctions on Canada and Mexico. The oil market is very concerned about the possibility that President Trump is going to put a 25% tariff on that cheap, heavy, Canadian crude. The market is also worried because the United States is predominantly a light oil producer. Canada helps our refineries by adding into the mix the coveted heavy oil that our refineries have been built for. Heavy oil produces more diesel. With cold temperatures, it is going to be very much in demand.
We did see oil pull back yesterday even though oil demand is through the roof right now. The expectations that we’re going to see a warmup, perhaps a warmer-than-expected February, could keep a lid on those prices. On the flip side, these weather forecasts have been known to flip-flop and if they flip back colder, we could see the market go back up.
At the same time, we live in a world where oil supplies are tightening Saudi Aramco’s Chief Executive Officer Amin Nasser is suggesting that sanctions on oil tankers are going to reduce supplies and tighten the market significantly. He told Bloomberg TV that, “Those restrictions are already starting to tighten the oil market, Nasser said. But it’s too early to see if the prospect of sanctions obstructing the flow of some 2 million barrels of daily Russian seaborne crude will have a lasting impact, he said.”
Bloomberg also reported Nassar saying that, “China is still driving growth in global oil demand, the head of Saudi Aramco (TADAWUL: 2222 ) said, dismissing concerns about peaking consumption in the world’s biggest energy user. “We still see good demand coming out of China,” Aramco’s Chief Executive Officer Amin Nasser said in a Bloomberg television interview in Davos. The country, along with India, makes up about 40% of the rise in global consumption and, “demand is increasing year on year.””
Nasser expects global oil demand to rise by about 1.3 million barrels a day this year to 106 million a day. That’s slightly higher than the 1.05 million barrel-a-day growth forecast by the International Energy Agency according to Bloomberg.
Sanctions are starting to bite. Bloomberg reported that, “Tankers that used to haul oil from Russia’s western ports are being redeployed to the nation’s east to service a key crude route to China that’s been crippled by sweeping US sanctions. Part of the reason is likely money. Freight rates to transport ESPO crude from the Russian port of Kozmino to China more than tripled after the US imposed sanctions on tankers that utilized the route. Most ships typically used for the trade are Aframaxes, which have a capacity of around 750,000 barrels.”
I think the interesting thing here is that the Saudi Aramco CEO didn’t seem like he would be in a hurry to raise oil production. One of the key elements of the success of going tough on Iran and Russia for the Trump administration will be the ability of OPEC plus to increase production to make up for lost supply. President Trump has a pretty good relationship with Saudi Arabia. He definitely has the political capital to pressure them to increase production if needed.
Early returns are saying the market is going to have to get prepared for a world with less oil from what we consider to be bad actors. With less oil from Russia, we will get less oil from Iran, and less oil from Venezuela. The US isn’t going to make up that void right away.
Today with traders getting back to full strength we should try to recover some of the losses that we have seen. We are still going to have to face the oil inventories which should show significant drawdowns in crude supply. From a technical viewpoint, we need to build a base and hold today to keep the strong bullish trend alive. The incredible build that we’ve seen in oil products in the last two weeks should start to reverse and we could see some significant draws as the market finds some equilibrium.
I don’t care what anybody says, it’s darn cold. Yet natural gas is already looking ahead to a warmup. While Henry hub futures are down it’s a different story and the physical markets.
EBW analytics reports that, “Physical market fireworks saw the Henry Hub benchmark clear north of $10.00/MMBtu for the long holiday weekend. Spot gas prices from Chicago to the Southeast to the Mid-Atlantic to New England traded into double digits.
NYMEX futures faltered, meanwhile, as the market refocuses on moderating early February forecasts and freeze-offs of 7-9 Bcf/d were less than feared. Speculator short positions neared a four-year low ahead of Enzo—and rebuilding shorts could affect the supply and demand for futures contracts. Ultimately, growing confidence in a moderate February, returning supply, and reentering shorts suggested medium-term declines for the March contract.