I blinked. I guess I missed the point.
The elusive point being, skyrocketing gas prices and the president’s plummeting approval ratings are key factors in the jump in inflation. The president somehow managed to release 50 million barrels from the Strategic Petroleum Reserve (SPR) and convinced others to join the game.
And he also convinced OPEC to increase supply from 400,000 bpd to 500,000 bpd in November.
As mentioned in last week’s report, this dropped the West Texas Intermediate (WTI) price overnight by 10% and gasoline and diesel prices by 11 cents per litre.
Fast forward to today’s pricing and a reality check:
• Pump and rack prices have now clawed back eight cents of the 11 cent per litre decrease.
• The price of crude is now back well above $70/bbl.
• The draw from the SPR had been anticipated, or should I say, ‘trial ballooned’ for weeks ahead of the official announcement. This means that the draw had already been built into the cost of crude, so it had already reached the floor price.
The question I have is, why didn’t the president look in his own backyard and encourage the shale oil industry to increase production?
But he didn’t even ask, instead he went straight to OPEC.
The current production level in the shale patch is 11.7 million bpd while the pre-pandemic rate was 13 million bpd.
Five years of under-investment in the U.S. energy sector, due to political activism in its race to morph the economy to a green energy portfolio, has forced oil companies to throw money at their shareholders rather than invest it in the ground where the money is coming from.
There is little indication that the oil industry in the U.S. will return to pre-pandemic production mode any time soon. In fact, the race to green energy at the cost of the fossil fuel industry will only discourage new capital investing in the oil patch. This may ironically boost crude oil prices to $100/bbl and see gasoline pump prices easily hit $2.00 per litre.
If you think inflation is a problem now, just watch what happens to your wallet in the future.
As for politicians trumpeting the green alternative to fossil fuels, all I can say is, make sure you are in tune with the consumer. Or change the tone of your tune because we are living in precarious times.
– Roger McKnight – B.Sc., Senior Petroleum Analyst
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