A short respite from rising oil and gasoline prices is about to end at the end of 2022. The reasons are many, but almost all of them are directly related to the supply chain. General estimates suggest a return to $100 a barrel for Brent, which would inflate gasoline prices to around $5 a gallon on average in the United States. These projections are probably conservative. It should be noted that it is unusual for mainstream financial media or mainstream analysts to suggest the idea of another spike in energy prices. As the midterm elections approach, rising gas prices would put a damper on the Democrats’ chances of retaining a political majority. Stagflationary pressures are already high on the list of public concerns in the United States, far above social issues and geopolitical conflicts. Higher energy costs would be more than unfortunate before winter.
This is why Joe Biden has been so exuberant about releasing oil supplies from the US Strategic Reserves for many months. Biden’s plan released 1 million barrels a day into the supply chain and is expected to end in October. Reserves are now depleted 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 preparedness and for the express purpose of political gain.
Biden’s ability to keep pumping oil into markets to keep gas prices low is diminishing. Even if he continues the strategy after October, a red sweep in November would bring challenges and a reserve freeze anyway.
Another factor is the failure of attempts at a nuclear agreement with Iran and the lifting of sanctions by the West. The free flow of Iranian oil is not happening anytime soon, leaving Western access to a major oilfield off the table.
Europe’s desperate search for oil, coal and gas will siphon off supplies from world markets, leaving every other country with less. The obvious result will be much higher prices for everyone.
On the same subject: Pierre Andurand: Europe can replace a large part of Russian gas with LNG
There is also the matter of the strengthening of the US dollar. As a petro-currency, most of the world’s oil has been bought in dollars, allowing Americans to take advantage of lower prices. However, sanctions and economic tensions between East and West have led to an upward trend of bilateral trade agreements removing the dollar as a reserve currency. In addition, the strong dollar has also led to turbulence in foreign exchange and currency markets like the Japanese yen, which could lead to increased dumping of US Treasury holdings by international creditors. We may soon be facing a coordinated effort by central banks to crush the dollar even as the Federal Reserve seeks to bolster the greenback with interest rate hikes.
Barring a sudden crisis event like an extension of the war in Ukraine or a Chinese invasion of Taiwan, oil prices are expected to rise further as supply chain issues mount.
The Department of Energy plans to replenish strategic reserves by purchasing oil stocks in the future at prices set today. The argument is that it will increase domestic oil production. The problem is that it reduces production cost inflation for shale oil drillers. Fixed prices would only work as long as drillers can continue to make a reasonable profit. If they can’t, they’ll just close. By extension, the plan also assumes that drillers will be able to produce a surplus beyond market demand to sell to the government.
If the government secures an initial purchase agreement, drillers will not be able to supply as much oil to regular consumers and prices will continue to soar. If the government does not secure an initial purchase contract, European buyers will likely snatch up any surplus. Regardless, consumers in general will see no benefit from increased drilling if it occurs, and Biden’s fraudulent green energy program will only further restrict oil producers. Overall, each observable factor suggests high oil and gas prices in the near term.
By Zerohedge.com
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