“Well, that sure was a short-sighted move.”
That’s my summation of President Joe Biden’s response to the two million barrels per day crude oil production cut announced by none other than who he thought was his best new buddy, Saudi Arabia.
“Oh, come on now OPEC guys, couldn’t you just hold off on this until my mid-term coronation?”
This move by the Saudis means that the U.S. will have to dip into the ever-evaporating Strategic Petroleum Reserve (SPR), to prop up crude inventories and hopefully lower pump prices, which have suddenly begun to boil again.
And so, it’s back to the basics of the problem.
The “OPECians” are cutting back crude supply because they need crude to be at the $90/bbl mark at least, if not higher. They correctly see inflation, and a possible recession, lowering demand. So, they want a higher price for whatever demand is left.
This puts the consumers on both sides of our border in a “pricing pickle.”
As we all know, and cannot ignore, prices in this country follow whatever happens south of the border, and the inventory situation in the U.S. has gone south in a bad way, at a bad time.
In this week’s EIA report, inventory levels of crude, gasoline, and distillates all fell.
This is especially concerning in the case of distillates, which nationally remain 21% below the 5-year average, with the first hit of snow predicted in some parts of the country, as early as next week. Of extreme concern is the New England portion of the U.S. whose inventories sit at 3.6 million bbl., compared to 12.2 million barrels pre-pandemic.
There is mounting pressure on the Biden administration to stop exporting crude and refined products to Europe and instead take care of the U.S. consumer first.
But this is also short sighted.
If exports were to stop, this would only increase the price of the global crude marker Brent, which is already set to increase with the Saudi production cutback.
So, any export cutback will only boost Brent crude even higher, and just by supply osmosis!
Then there is the domestic political dilemma to consider. Prices of gasoline and diesel east of the Mississippi, and especially the New York Harbor (NYH) pricing hub, is based on Brent crude prices, not West Texas Intermediate (WTI).
President Joe Biden will not welcome spiking pump prices in the Democrat’s home territory in the U.S. eastern seaboard.
Lastly, the consumer is now paying the price with the short-sighted rush to get out of fossil fuel refining and jump on the Green is Greener bandwagon to the stampede – to the electrification of all or any things “electrible,” (my word). Eco activists have been successful in intimidating investments in all ventures even remotely related to fossil fuels. This includes refinery upgrades and maintenance.
I wonder if this same pod of media hounds is among those demanding blood because of high pump prices, which are jumping 10 cents per litre overnight and are now approaching $2.40/L in Vancouver.
Ponder this:
Lack of financial interest in the refining industry has resulted today in six refineries down in California, three in Washington, three on the Gulf, and one in Ohio.
That is the entire refining capacity of Canada.
May I suggest that politicians look before they leap?
Is the bungee cord too long or too short?
I guess it depends on how far you want to fail.
– Roger McKnight – B.Sc., Senior Petroleum Analyst
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