Hot weather is intensifying Europe's recurring energy problems.
The Nord Stream pipeline's destruction still shapes how the continent buys fuel, and it is starting to move prices around the world.
European energy problems are partly of their own making. Policy choices such as closing nuclear and natural gas facilities have left the region leaning more on imports. Mild weather helped in past years, but this summer's heat is pushing electricity use up.
Germany's gas storage is sitting below last year's levels and near the bottom of the normal range, according to the country's Federal Network Agency. A cold winter could force Germany to cut back on gas use, which would ripple through global markets.
Europe has agreed to phase out Russian LNG imports starting this year and end them by next fall. The continent also buys gas from the Middle East and the United States, so the demand looks positive for two U.S. exporters, Cheniere and Venture Global.
Diesel prices are creeping up. The U.S. average is $5.47 a gallon, and parts of California are above $7. The national average is near its record of $5.81 from June 2022.
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The price climb comes from a few places. Diesel and jet-fuel stockpiles dropped by a half million barrels in the previous week, according to Piper Sandler.
California feels this more than most. The state's gasoline tax is the steepest in the U.S., adding over 70 cents per gallon. California has also lost two refineries in the past year and now depends on imported fuel. Over 30 million vehicles are registered there, and while some are electric, millions of gas-powered cars are driven long distances because many people live far from work.
A proposed Western Gateway pipeline could help. Phillips 66, HF Sinclair, and Kinder Morgan are behind the project, which would link into existing pipeline systems in the Los Angeles area and other parts of the country. It could reduce gasoline prices in California and also help Arizona, which gets much of its gas from California. The earliest it could be done is 2029, so relief is a few years off.
The energy squeeze is drawing attention from hedge funds. Federal filings from the previous quarter reveal the 15 energy stocks with the largest hedge-fund ownership. Williams came first, followed by Chevron, Energy Transfer, Devon Energy, Antero Resources, and Expand Energy.
Some of these names are tied to the AI boom. Williams, a pipeline company, is pushing into AI and data-center demand by linking natural gas directly to electricity generation. Solaris Energy Infrastructure, which supplies mobile power infrastructure for AI, trades 65% below its $95.52 target. ProPetro Holding Corp, which does fracking and power generation, is 43% below its consensus target.
Other fund favorites include Golar LNG, BKV Corporation, and Targa Resources. Targa has a 20-year deal with ExxonMobil to support Exxon's Permian Basin expansion and add land to its holdings.
So what does this all add up to? Energy prices are a mixed bag. Bison Interests CIO Josh Young said, "Oil prices could move higher while pump prices could move lower." That would be a shift from the current trend of rising diesel costs.
The nuclear side is worth watching too. Nuclear stocks have fallen, and short sellers have earned $2 billion betting against modular nuclear reactor stocks. That kind of money changing hands suggests some investors see a pullback coming.
China has cut off some solar and wind generation because its grid cannot absorb it, and the UAE said Iran fired two missiles that landed in the sea.
For everyday investors, the takeaway is that energy is not a single story. The AI demand is real, the geopolitical risks are real, and the prices at the pump are real. Keeping an eye on where the money flows - from hedge funds, from Europe, from California - is a way to stay ahead without getting burned.
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