The Biden administration’s devastating policies for the economy continue to take their toll on the poor and middle class, and the administration is out of answers. Biden unfairly blames oil companies for all his problems but defends his policies that anyone who has a basic understanding of supply and demand knows have led to rising prices for oil and gasoline. When you restrict supply and add burdensome regulations and red tape and openly discourage investment in the space, do not blame anyone else for the problems that you created. You must own your policies that have been designed to make oil and gas prices higher.
Joe Biden thought he might get away with it, but now the war in Ukraine shows the emptiness and shallowness of his policies. The lack of understanding of energy and basic economics is laid bare by his attempts at price controls with short-term fixes that will only exasperate problems in the long run.
Joe Biden told The Associated Press on Thursday that the American people are “really, really down.” Of course, they are. In fact, according to the University of Michigan Survey, they are down from a confidence standpoint more than they ever have been. Most Americans believe that the country is going in the wrong direction and they are right. Biden thinks that a recession can be avoided, but that doesn’t really matter because most Americans believe we’re already in a recession. More of their paychecks are going to the costs of basics and food, and rent. Gasoline is all going higher! Yet it is their fault because they did not buy an electric car.
Just consider some of the policies that Biden and his team are considering. Price caps, for example. An honest economist will tell you that price caps lead to shortages. Shortages lead to higher prices, but if prices are capped, the investment drops. The same can be said for Biden’s energy policy which has openly discouraged investment in oil and gas and refineries, and then they blame oil companies and refineries for not producing. Of course, they say they only want you to produce for a while, maybe until the mid-terms, because after that, they are going to legislate you out of business. Biden’s party likes to compare the oil and gas industry to big tobacco. Yet oil and gas do not take lives but provide the energy we need to live. Just think how many lives have been saved today with air conditioning that was powered by fossil fuels. You also have to ask, if we went totally to wind and solar, could we provide the amount of energy needed to keep America cool. The answer is no.
The other gimmick Biden is considering is a federal gasoline tax “holiday.” Reports say that could come by the end of the week – that amounts to 18.4 cents per gallon. Biden doesn’t understand that in this situation, with supplies this tight, lowering prices temporarily will only increase demand. If demand increases, more strain will be placed on the refineries that he’s tried to close down. Those are the same refineries he’s blaming for not making more gasoline. The truth is that Biden only wants them to make oil and gas when politically expedient otherwise, he just wants to shut them down. I think investors have the message, and that is don’t invest in the oil and gas industry. The U.S. oil industry’s main trade groups pushed back on Wednesday in a letter to Biden, pointing out that the nation’s oil refineries are already running at close to full capacity – currently at 94% of capacity.
The Biden administration released the strategic petroleum reserve in November, and that was meant to slow down gasoline prices and send OPEC a message. That did not work. The next release was because of the war in Ukraine when Biden worked with the International Energy Agency countries to release oil from their respective reserves, but that too failed. So when you’ve used policies that most people would tell you would fail ahead of time, why bring back policies that we know have failed in the past?
Reuters reports that he United States is in talks with Canada and other allies to further restrict Moscow’s energy revenue by imposing a price cap on Russian oil, Treasury Secretary Janet Yellen said on Monday. Yellen told reporters in Toronto:
“We are talking about price caps or a price exception that would enhance and strengthen recent and proposed energy restrictions by Europe, the United States, the U.K., and others, that would push down the price of Russian oil and depress Putin’s revenues while allowing more oil supply to reach the global market.”
Yet the short-term fixes aren’t going to solve the overall problem. The problem is that E.U. and Europe, to a large degree, bought into this green energy push, and they are trying to move towards carbon-neutral, not thinking of the consequences. The war in Ukraine was largely a war inspired by green energy policies. Vladimir Putin saw weakness in the Biden administration and so took advantage of his energy stranglehold over the entire region. Now the Russian ruble is soaring to higher levels than it was before the war as Putin forces his European counterparts to pay him in rubles, and Europe has to abide by it because if they don’t, they know that their economy will shut down and they can’t keep the lights on. The situation is so bad that Germany is restarting coal plants. How is that going to help them meet their carbon initiatives? Too bad they didn’t invest in natural gas, which is a much cleaner burning fuel so that when they turn the power back on and they had to use alternative energies from Russia, they could then use a cleaner-burning fuel or perhaps they have regrets closing all of their nuclear power plants. If they don’t, they should regret it.
Bloomberg News reported that Exxon Mobil Corp (NYSE:XOM). said global oil markets may remain tight for another three to five years largely because of a lack of investment since the pandemic began. It’ll take time for oil firms to “catch up” on the investments needed to ensure there’s enough oil supply, Chief Executive Officer Darren Woods said at the Qatar Economic Forum on Tuesday. Oil prices have soared almost 50% this year to around $110 a barrel, mainly because of the fallout from Russia’s invasion of Ukraine. That further squeezed a market struggling to raise production fast enough to cope with economies recovering from the pandemic.
Gas turmoil may last years, says Conoco, as it invests in Qatar. Woods was speaking in Qatar, among the world’s biggest exporters of liquefied natural gas and one of few nations that can substantially replace Russian gas supplies to Europe. Firms, including ConocoPhillips (NYSE:COP), are investing in a $29 billion project to boost Doha’s exports.
Kelly Blue Book Reports, that gas prices are high, and America’s car lots are full of the least fuel-efficient vehicles. Dealers have a thin supply of hybrids and fuel-efficient small cars to sell. You’ll have a much easier time finding a full-size truck or 3-row SUV in dealer stock. Dealers measure their supply of cars to sell in a metric called “days of inventory” – how long it would take them to sell out of cars at the current rate if they didn’t acquire any new stock. They’re historically low on everything right now. At the end of May, dealers had an average of 34 days’ worth of cars to sell – 25% fewer than a year ago. But the numbers are worse for more fuel-efficient cars. Dealers ended the month with an average of just 19 days’ worth of compact cars available. They had 20 days’ worth of hybrid cars and just 22 days’ worth of midsize cars.
It’s a risk-on situation, and that’s helping oil, gasoline, and products. The rebound in prices signals that we are in a very strong bull market, and it’s possible the correction is over. The stock market has been weighing on demand, and concerns for recession are also taking their toll. While we may go down and retest the lows, right now, it looks as if we have a short-term bottom the long-term bullish situation for oil and gas has not changed, and if Biden is right and we do not fall into recession, then there’s a high possibility that prices will make new all-time highs. At the same time, we have to keep an eye on China as COVID worries still linger, and that could impact their demand negatively. That’s a big factor on the flip side. If China ever reopens, we’re going to see a lot of market tightness, and that should drive prices even higher.
Natural gas prices are coming back down. The Freeport situation is still the most negative factor for this market. Right now, we are going to be standing aside. If we get a sharp break, you may want to put on some calls for later in the summer.