by David Messler at Oil Price
- Fuel prices have crept higher and higher this year, but the cause is quickly becoming a finger-pointing contest with no real winner.
- Rising demand and dwindling supply are the true force behind the increase in gasoline and diesel prices.
- While central banks can work to reduce demand, the market may struggle to solve supply issues.
Oil prices are a common topic of conversation around the office water cooler these days. As you might expect, perspective matters. The folks at the Halliburton, (NYSE: HAL), office in Midland, Texas likely view the advent of $100 WTI much more warmly than many others whose living doesn’t depend on it directly. At the other end of the spectrum, truckers, the good folks who deliver everything from baby formula to hamburger patties, are pleading for relief from diesel prices that have doubled in the space of a year. The old saying, “One man’s meat, is another man’s poison,” probably never rang truer. These pleas have caught the ears of many of our political leaders. With few exceptions, they have resolutely, and indignantly laid the blame for high gasoline, and diesel prices directly at the feet of the oil companies that produce, refine, and distribute these products. The president also has made strident comments regarding oil companies. In a number of recent interviews, he has castigated them for diverting capital toward shareholders in lieu of break-neck drilling to raise oil supplies, with the desired outcome of lowering oil prices. One can only wonder if the irony of that commentary is lost on the president.
President Biden has been frustrated in his attempts to reduce oil prices, or properly affix blame for them. Starting last year he publicly exhorted the Saudis to raise production to reduce prices. The attendant irony of making this request to one of the top global oil producers seems to once again be lost on the Commander-in-Chief.
The Saudis, not so politely, demurred. In an odd pivot, he then sent emissaries to Venezuela to see if they might be of some help along these lines. Data contained in the most recent edition of the EIA-Weekly Petroleum Status Report-WPSR does not suggest this trip was fruitful.
Undeterred, earlier this year, plans were made to personally renew his insistence that Saudi Arabia begins to pump more. A notion that the Saudis quickly discouraged. Shortly after receiving news of the visit being declined, President Biden then called the leader of Saudi Arabia, Sheikh Mohammed bin Salman – MBS, to make his case. Reportedly, the sheik was not available when the call was made.
The Russian invasion of Ukraine then supplied the president with an obvious bogeyman for the high cost of fuel. The president has often referred to “Putin’s war,” as being responsible for the high cost of driving for Americans. An assertion that doesn’t bear up under strict scrutiny. There is a vague association that can be made, however, as the loss of Russian supplies, and near-universal embargoes, have stressed an already tight situation globally.
On two occasions Biden authorized tapping the Strategic Petroleum Reserve-SPR, with the hope of dropping the cost of gas and diesel for consumers. He has also authorized refiners to keep the E-15 blend to increase supplies of fuel during the summer driving season.
Biden’s attempt to deflect blame for the high prices and the attempt to flood the market with oil have both been perceived as failures, and perhaps left people confused about the primary source of cost inflation in the world today. In this article, we will examine some data points and make a determination as to whether oil companies are responsible for the high price of refined products.
Are high gasoline and diesel prices the direct result of high oil prices?…
Continue Reading