A short respite from rising oil and gasoline prices is about to end as 2022 comes to a close. The reasons are numerous, but almost all of them relate directly to the supply chain. Mainstream estimates suggest a return to $100 per barrel for the Brent which would inflate gasoline prices back to around $5 per gallon on average in the US. These projections are likely conservative.
It should be noted that it's unusual for the mainstream financial media or mainstream analysts to suggest the idea of a renewed energy price spike. With mid-term elections closing in, higher gas prices would put a damper on any chances democrats might have in maintaining a political majority. Stagflationary pressures already top the list of public concerns in the US, far above social issues and geopolitical conflicts. Higher energy costs would be more than unwelcome going into winter.
This is the reason why Joe Biden has been so exuberant about releasing oil supplies from the US strategic reserves for the past several months. Biden's plan unleashed 1 million barrels per day into the supply chain and is set to end in October. The reserves are now depleted to the lowest levels since 1984, with gas prices STILL nearly double what they were when Biden entered the White House. It is essentially market manipulation at the expense of US strategic readiness and for the express purpose of political gain.
That said, Biden's ability to continue pouring oil onto the markets to keep gas prices down is dwindling, and even if he is able to continue the strategy past October, a red sweep in November would bring challenges and a freeze on reserves anyway.
Another factor is the failing attempts at a nuclear deal with Iran and the lifting of sanctions by the west. The free flow of Iranian oil will not be happening anytime soon, leaving western access to a major oil pool off the table.
The next issue is the ever changing situation in the Ukraine war. Russia is already receiving the brunt of the blame for global inflation, but this is clearly nonsense when we take into account the fact that inflation hit 40 year highs months before Russian invaded Ukraine and gas prices were rising well in advance of the conflict.
The accusation may become true in certain respects, though, as Russia cuts natural gas supplies to Europe and the EU flails around this winter looking for replacement energy sources. Europe's desperate search for oil, coal and gas will siphon supplies away from the global markets leaving all other countries with less. The obvious result will be much higher prices for everyone.
There is also the issue of the stronger US dollar. As the petro-currency, most oil around the world has been purchased in dollars which allows Americans to enjoy lower prices. However, sanctions and economic tensions between east and west have led to a rising trend of bilateral trade agreements cutting out the dollar as the reserve currency. Furthermore, the strong dollar has also led to turmoil in FX markets and in foreign currencies like the Japanese Yen, which may lead to increased dumping of US Treasury holdings by international creditors. We could soon be facing a coordinated effort by central banks to crush the dollar even as the Federal Reserve seeks to strengthen the Greenback through interest rate hikes.
Barring a sudden crisis event such as an expansion of the war in Ukraine or a Chinese invasion of Taiwan, oil prices are still set to rise as supply chain issues multiply.
The Department if Energy plans to replenish strategic reserves by purchasing oil stocks into the future at prices set today. The argument is that this will increase domestic oil production. The problem is that this discounts inflation in production costs for shale oil drillers. Set prices would only work as long as drillers can continue to make a reasonable profit. If they can't, they will simply shut down. By extension, the plan also assumes that drillers will be able to produce excess beyond market demand to sell to the government.
If the government gets a first purchase arrangement, then drillers will not be able to supply as much oil to regular consumers and prices will continue to spike. If the government does not get a first purchase contract, then any excess will probably be snapped up by European buyers. Either way, general consumers will not enjoy any benefits of increased drilling if it occurs, and Biden's fraudulent green energy agenda will only restrict oil producers even more. All in all, every observable factor suggests high oil and gas prices in the near term.
Mon, 09/26/2022 - 21:20