Speaking of damage control, the editors of the Washington Post leap to President Biden’s defense regarding gas prices:
The United States has hit another uncomfortable milestone: $5 gas is now the norm. More than 20 states have prices above the $5 mark (California is above $6 a gallon), according to AAA. Record gas prices are a daily reminder of how different the current economy is from what many Americans are accustomed to: Inflation is at a four-decade high, and interest rates are rising at a pace not seen in two decades. People are anxious about this economy. Consumer sentiment is at a record low since the University of Michigan began tracking it in the mid-1970s.
This is largely Vladimir Putin’s fault. Gas prices are up nearly $2 in the past year, and 75 percent of that increase came since Putin’s Russian troops invaded Ukraine. The United States and many other countries rightly responded to this unjustified war by imposing heavy sanctions and halting purchases of Russian oil and grain. But that means supplies are down, and energy and food prices have soared to record highs around the world. Putin wants — and expects — the world to cave and lift the sanctions and cede parts of Ukraine to Russia in the face of these high prices. As hard as it is, we cannot let Putin win.
They conclude by urging President Biden to prevail on oil companies to produce more oil:
Mr. Biden and his team need to engage more with domestic oil producers about what’s needed to spur more production — and remind companies that their soaring profits may please Wall Street, but they harm American families as well as the broader effort to end the war in Ukraine.
There’s a kernel of truth in what they’re saying but I don’t think it’s the whole story.
Consider the graph of oil prices at the top of this page. The green line represents when Joe Biden was elected president. The red line indicates when Russia invaded Ukraine.
As should be obvious a considerable portion of the run-up in oil prices took place before the invasion of Ukraine. Consequently, The increase in prices between those two lines, roughly half of the total, cannot be attributed to the invasion.
Consider the following pledges from Candidate Biden:
Transition from oil
100% “clean” energy by 2035
Biden’s green energy proposal
Among his first acts on becoming president were a consumption subsidy and cancelling the Keystone pipeline. Getting domestic producers to increase production isn’t like turning a faucet on and off. Not only is a substantial lead time required but investors need to be convinced that they’ll be able to reap the benefits of their investment its lifetime.
Isn’t it just barely possible that people have been taking President Biden seriously?
So I’ll blame Putin for half of the increase in the price of gasoline but President Biden deserves the other half. Look at the bright side. As oil prices continue to increase more of the run-up will be Putin’s fault. I’m sure the American people will be understanding about that.
Good and hard.
Make a list of those people who supported warmists.
They deserve payback.
America’s energy policy is controlled by extremist environmentalists in the civil service and DoE. They have been imposing policies like cancellation of the Keystone pipeline and oil leases in order to shut down oil production and consumption. This is an ideologically driven policy with no connection or even awareness of economic reality. Whether Biden is in on it is a question. His mental decline gives him some cover. He is likely just a puppet.
I doubt the war in Ukraine has much to do with gasoline prices. The sanctions against Russian oil and gas exports don’t kick in until later this year, and there are numerous exceptions, like diesel. The current high oil prices appear to be speculation on the possibility of future cutoffs.
The sanctions are wrecking the EU economy and hurting us, but the effects on Russia seem minimal. Russia is running record high trade and current accounts surpluses, and the ruble is rising against both the dollar and euro. They are being imposed because of our Ruling Class’ delusions about Russia, and a believe that it has a tiny (like Spain’s) and backward economy.
Au contraire. Russia has the strongest economy in the world. It has a large, modern industrial base, highly productive agricultural and forestry sectors, and the largest natural resource base of any country. It is a major exporter of fuels, food, minerals, finished metals, and manufactured goods. It is the most autarkic economy in the world, and is self sufficient in all critical items. The government runs budget surpluses (even at $40/bbl) and has essentially no foreign debt. Its military is second only to ours, and has some capabilities we don’t have.
Reality is going to be very cruel to America and Americans
Maybe all you say is true, still a nation of slaves and if they decide to threaten us with their nukes, we have only one option.
And it is not slavery.
As I recall prices started going up a bit before the war started as the admin was predicting war and Russia did have troops massed. Of course the Russia fans were then saying they would never attack and it was lies about Russia.
Steve
Look at the graph, steve. It went up a lot considerably before the war.
Another reference point is when Biden first tried to talk the Saudis into increasing oil production. It was around May or June of 2021 when the economy was reopening.
One would have expected gas prices to return to pre-pandemic levels, plus or minus new factors. They didn’t. You, in the second half of your post, and Sykes outline the relevant contours as to why.
Steve doesn’t, or refuses to, understand the mindset of investors. Biden openly declared war on fossil fuels, and has put up regulatory barriers. Managers/investors don’t risk capital under such profound uncertainty. Exploration is risky as it is, and building refining capacity comes in big dollar chunks, the costs of which are amortized over many years. The cost of failure is high.
The Putin argument is also spurious in that it avoids noting the intransigence of the Biden Admin. For political gain they embarked upon, and refuse to alter, their adversarial energy policy. One can only shake one’s head at the pathetic pandering now to SA or Venezuela. Apparently their oil doesn’t pollute.
This all comes at great cost to the vast majority of American people. A modern economy is so energy intensive that the pervasive effects of artificially high prices can hardly be imagined; but we see it manifest in all kinds of goods and services. This is incompetency at the highest level. As noted: good and hard.
You might understand investors better than I do, but I think your politics leads you to narrowly focus on stuff for which you can blame Biden. If a lot of what we are seeing is pent up demand then when that goes away so does the need for extra oil. Drilling a lot of wells that will sit unused is a risk. At any time the Saudis could start pumping and then prices drop. Then in the medium term with the costs of solar and wind dropping so much and battery tech improving so much that hurts demand. All that on top of poor returns during the pandemic. Even if Biden was never born I can see oil companies being cautious and just enjoying the big profits they are seeing now and returning that to investors. I can see cautious investors preferring that too.
Steve
The good news, crude oil prices will top out within the next year — if one projects the approximately ~5% increase monthly in oil price for the past two years out — by June 2023, prices would be between $160 to $240.
Given the inflation adjusted oil price peak in 2007, 1970, 1990 are all around $200; it is likely as oil approach’s that price significant demand destruction will occur.
The bad news is what it implies for the economy…..
To the best of my recollection we have never had the sort of run-up in oil prices as we’ve experienced over the last two years without the economy going into recession. It has been observed that we are somewhat less dependent on oil than we were, say, 15 years ago but IMO that just implies a delay in the onset rather than that we are protected against recession.
I expect recession but then UE is so low. We are close to where we were pre pandemic in numbers employed. Also, went back and checked. Energy sector has been the worst or second worst performing sector 7 of the last 10 years.
Anyway, suppose Joe Biden doesnt exist. Suppose you are an investor. You think the country is going to go into a recession. You expect energy stocks to do well? Should oil companies expand drilling if the expect a recession?
Steve
The labor force participation rate remains significantly lower than at the start of the pandemic which skews things quite a bit. I’m beginning to wonder if there is an undiagnosed wave of hikikimori among our young, our elders, or both.
To save you the trouble of looking it up hikikimori is an extreme form of social disengagement. The stereotype is locking yourself in your room and watching Instagram videos.
Or more people working off the grid.
Steve
Could be. I wonder how you’d go about testing that empirically?