Oil Prices Up To $100! Is The Fault of Renewable Energy Transition?

This week, Goldman Sachs raised its oil $WTI Crude Oil - main 2311(CLmain)$ price target to $100 once again, based on OPEC production cuts compounded by rising demand offsetting a sharp increase in U.S. supply.

Meanwhile, while gasoline prices have risen in the U.S., sales of electric vehicles have fallen rather than risen. In Europe, the de-industrialization of Germany is no longer in the news, as the country's auto industry prepares for China's electric vehicle boom; What’s more, Brussels is working to build an energy transition supply chain from scratch.

Offshore wind developments are being canceled one by one both in Europe and the U.S., and European solar developers are complaining that cheap Chinese solar panels are making it difficult for them to survive. By contrast, oil companies continue to report handsome profits, and investors have fallen in love with oil and gas once again.

The energy transition shoots themselves in the foot.

During the World Petroleum Congress in Calgary, Canada, oil company executives as well as government officials warned of the bad consequences of policies continuing to curb new investment in oil and gas. Darren Woods, Exxon's chief executive, said the transition to renewable energy cannot happen overnight. If a certain level of investment is not maintained, the end result will be a lack of supply and higher prices.

And that's exactly what Europe and the United States are going through right now. Because of the energy transition, oil producers are being extra cautious about increasing production, while prioritizing shareholder returns in order to retain shareholders. In Europe, oil and gas giants, faced with windfall taxes, pressure from activist investors and increasingly stringent regulations, are choosing to "leave": Shell has explored billions of barrels of oil reserves in Namibia, while Total is considering investing $9 billion in oil exploration in Suriname.

Meanwhile, drivers in Europe are facing higher fuel costs and electricity tariffs as the country becomes increasingly reliant on wind and solar power, which are unstable and require backup support from oil-fired power plants. These power plants are heavily taxed for their carbon emissions, which further drives up output costs and electricity bills.

All of this is only going to get worse. While there are growing signs that the transition is unlikely to go according to plan, policymakers are not about to give up, but are ramping up their policy efforts. The offshore wind industry is essentially on its deathbed, but the government's attitude hasn't changed. In the face of the problem, the most likely step they will take is to ramp up subsidies rather than reconsider the role of offshore wind in the energy transition.

In the EV domain, inventories are rising at US dealerships, and $Ford(F)$ recently said the company's EV business would generate a $4.5 billion loss. In Europe, EV sales are rising strongly, but China's EVs are good and cheap, putting pressure on local automakers.

The U.S. solar industry is doing well, with a record 32 gigawatts of new generating capacity set to be installed this year, thanks to the Inflation Reduction Act's investment stimulus. However, no one cares about solar power after the sun goes down. Battery storage capacity lags far behind solar power.

Thanks to massive subsidies, the solar industry in Europe is also thriving.

Energy prices will continue to climb in Europe and in U.S., entirely due to the ill-considered energy transition policy of phasing out oil and gas.