Bashing OPEC and Big Oil in the US is Politics 101

There seems to be an obvious pattern of the party in power shifting the blame for all ills and taking credit for all cures. It’s public record that this administration wants to put our Oil industry out of business. Recently our top Banking CEO’s were demonized for even allowing fossil fuel companies to exist by approving loans. CEO’s of our energy producers have never been asked by the government about what they need to accelerate supplies. Yet when gasoline at the pump rose, we were told that low profit gas stations were to blame. When Oil prices hurt poll numbers this summer, lawsuits against Oil company were threatened. Other times it’s Russia’s fault, even though prices are lower now than when Russia invaded Ukraine. Could a government refusal of drilling permits and pipeline expansions be part of the problem?  With Oil prices down by a third since March, our administration has declared our longtime ally, Saudi Arabia, a pariah that would no longer receive US weapons and protection from Iranian proxy attacks. Not surprisingly, the Saudis then refused to cooperate with the President after several requests to boost production. The US has also bent over backwards to appease the anti-American Iranian dictatorship to bring them back into the prosperous global oil trade, but Iranian drones and troops in Ukraine appear to have terminated that effort. For good measure, the US has also offered lifting sanctions and infusing capital for the harsh dictatorship of Venezuela to revive its oil industry from the ashes. Maduro’s despotic regime wants cash up front for his cooperation, yet the potential boost to supply here looks quite dismal for years to come, even with US investment. What’s missing of course is a domestic pro-energy policy, instead of denying drilling permits, moratoriums on pipelines and refining capacity. In the current supply constrained world we live in, courting energy from all friendly sources should be a top priority to strengthen our allies, weaken our enemies and bring inflation to heel. As seen here, US gasoline inventories are at 8-year lows, mirroring the supply hurdles around the world. Without government approved infrastructure expansions, as Senator Joe Mansion tried unsuccessfully to acquire, increasing supply will be slower than the current effort to curtail demand. That requires a slower, more painful economy in 2023.


Oil companies are increasing their output, despite the numerous roadblocks by our own Government, but the vital supply increase to save Europe from a cold winter and lower prices longer term is hitting a ceiling due to a lack of natural gas (NG) pipelines. Fully utilized NG transportation capacity means that Oil production is also constrained since they are produced together. There is no place to store NG and flaring the gas – burning it at the wellhead – is extremely limited. Thus, instead of investing in Venezuela and begging our Iranian enemies to behave, there should be an emergency effort to build LNG ports and NG pipelines and incentivize workers to join the fossil fuel industry. Agreeing to protect the Saudis again, as we have historically, would also help persuade them to ignore their economic interests to curry our favor. Solar, wind and electric cars (EV’s) will continue growing by government mandate, but it could take decades to displace more than half of our fossil fuel needs due to cost, scarce resources and the amount of carbon required for renewable energy. The 250 million barrels drained from our Strategic (Political) Petroleum Reserve (SPR) has been all about perception vs reality. Gas prices at the pump rose by 35% after we began playing with extra supplies from the SPR. Prices rose after taping the SPR due to summer demand and a political capacity limit to refine Oil. Politicians could have incentivized energy companies to reopen old refineries that produce gasoline and rushed supply capacity expansion throughout the system but chose only to demagogue instead. Energy prices are now falling due to a worsening economy, not due to increased oil production or Government policies. Thanks to quantitative tightening to counter excess stimulus spending, we now have a rapidly slowing economy that is part of the normal process to lower inflation. 

The US has enough capacity expansion potential to be totally energy self-sufficient and there is clearly no hint of an energy crisis in the US this year. This is why we are disappointed in the political effort to appease voters by eliminating about 50% of our “emergency” oil reserves. Should war break out with China or Russia in coming months, as warned by the CIA, then we may need those strategic reserves back. Now it will take years to replenish our SPR or a very depressed economy with much lower consumption, while Western powers are left vulnerable to a true emergency.

Above normal inflation and higher energy prices that began soaring in 2021 were not due to President Biden taking the White House. However, with inflation at 40-year highs throughout 2022, it was foolish for the Administration to pass another $3 to 4 trillion in new spending packages ahead of the 2022 mid-terms at a time when reduced consumption was our only realistic mechanism to bring inflation back to its historic 2% level. The burden of defeating an embedded price spiral has defaulted to our Central Bank, who will be blamed for any Recessionary pain that occurs over the next year. By increasing fiscal spend, the Fed will have to keep credit tighter for longer than it would otherwise, until there is economic pain. For the winter, gasoline prices may stay below the summer peak, despite extremely low inventories. Negative seasonality and a Fed mandate to tighten credit until inflationary personal consumption falls, means the path for energy is lower. Upward energy price shocks will be short term exogenous geopolitical events until the Fed reverses to an easier money policy next year.

When rising unemployment and elevated personal default rates arrive in the first half of 2023, the Fed will pause its rate hiking gameplan and allow stocks to enter a new Bull market. However, watch oil prices for clues of future stock market action as Oil prices fall sharply prior to new Bull markets in equities. When we were interviewed in June, we forecasted an August peak in energy that would lead to Oil in the $70’s in September/October and possibly a test of $60 in the seasonally weak period from December to February. Our August top and September bottom occurred as expected, but should prices fall into the $60’s, that will mean the economy is finally feeling the pain of this non-recession and the Central Bank will be ready foreshadow stimulus once again.


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