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.
Biden's ability to continue pouring oil onto the markets to keep gas prices down is dwindling. Even if he continues 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.
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.
Related: Pierre Andurand: Europe Can Replace Large Part Of Russian Gas With LNG
There is also the issue of the stronger US dollar. As the petro-currency, most oil worldwide has been purchased in dollars, allowing Americans to enjoy lower prices. However, sanctions and economic tensions between the east and the 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 of 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, European buyers will probably snap up any excess. 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.
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The market is so tight that the US Department of Energy (DoE) won’t be able to replace the SPR releases amounting to 240 million barrels any time soon. Moreover, US shale oil production is a spent force. So if the DoE is hoping to replace the SPR releases from shale production, then it is wasting its time. US oil production including shale production is estimated at no more than 9.5-10.0 million barrels a day (mbd) as evidenced by US rising crude imports.
The current strength of the dollar against other major currencies is not a reflection of the health of the US economy. The dollar’s strength is due to the US Federal Bank raising interest rates to levels not seen for at least 20 years. Central Banks of other major economies could soon raise their own interest rates to levels matching those of the dollar and this will bring the dollar back to earth.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert
and to further "Promote" transition to electric transportation . This "Woke War" against fossil fuels is a purely a political Choice with the aim of heightening the price of fuel and force change.
Like most Democrat policies designed to play to a left base it makes little sense to shift to electric for the simple reason that the primary source of electric power in North America is from Fossil fuels - a very inconvenient truth that the mainstream press tries to ignore.