Thought I would check back in on inflation. It has turned out to be worse than predicted, which of course brings out the calvary that says “Now it’s going to be really bad!” These financial prognosticators know everything that happened yesterday and adjust to yesterday. We see this in the investment world over and over. Go back to the first of the year and see what the same fortune tellers said earnings and stock prices would be. What they say now has no more predictive power than what they said then. That’s why we should never guess, like analysts do. An old joke in the investment industry: Remember that the most common word used in tandem with earnings is “surprise.”
Now they are adjusting to yesterday in the other direction. Earnings estimates are being slashed, making it much easier for companies to “beat estimates.”
Energy runs the show. It is the base for inflation. The White House and Biden like to tell us how much more they are paying in Europe. Denmark is $10.50 a gallon! Sweden is $11.20! Norway is $11.80! See how good our prices are?! We’re doing great! Those countries have no oil! Let’s compare the US to other countries with a lot of oil in order of most oil and price per gallon: 1. USA $5.09 2. Saudi Arabia $2.41 3. Russia $3.41.
Of course, I am interested in the Energy business, and here is the problem with Biden excuses: They make no sense. Last week, Biden from the beach in Delaware, actually spoke all by himself! He said high prices were due to a transition to EV’s. No one asked, “So is the transition on purpose? And if it is, why didn’t you tell us about it when you were in your basement?” Further, the transition to EV’s should help inflation as you have a few less consumers getting gas (reduced demand.) He acts like it’s a planned out strategy! The 3 Biden big excuses for high priced oil. 1. The war. “Putin price hike.” 2. Transition to Green Energy (he supports that.) 3. Oil companies are gouging us. They aren’t.
“It’s refining,” he says in a kind of yelling whisper. Refining!” He doesn’t mention refineries are shutting down and they won’t make more, (due again for pandering to environmentalists,) as they cost billions and take 10 years to build. The green brigade will be pandered to, refineries won’t get built, drilling will slow and in 5 years, it will still be painful, if not worse, unless things change. Some other points:
- No one would have voted for him if he said we are going to shove through our (unworkable) green energy program whether you like it or not.
- Biden has done everything in his power to destroy the oil industry. Of all industries, oil and gas are the only ones that have given us almost everything we have in life. Biden is sending his “team” to meet with oil companies. Biden always seems to be scolding and blaming oil companies, even though he campaigned on getting rid of 50% of oil and gas by 2035. So, if you are a company, knowing the government is going to take half of your sales, how much capital do you want to spend with that prospect? Oil wells last up to 40 years. Natural gas plants last up to 50 years. So, our president is telling our oil industry they will lose 50% of their revenue by 2035 (13 years in case you aren’t doing math) for an investment that would return for 30-50 years but might not. And he’s surprised they don’t invest in more production.
- Refining- Our refining capacity has gone down as more and more plants close due to low profitability, environmental regulations, and again, the prospect of the continued war on oil.
Oil refineries across the country are being retired and converted to other uses as owners balk at making costly upgrades and America’s pivot away from fossil fuels leaves their future uncertain. That headline is from the Washington Post! https://www.washingtonpost.com/business/2022/06/20/refineries-profit-gas-prices/
They are starting to eat their own.
Biden is mad that oil companies are making a lot of money. He ignores that Exxon stock is lower than it was in 2014. He leans into the microphone and “creepy whispers,” “They have 9,000 leases. 9,000!” He doesn’t mention that is the same number we had when he took office! Nobody wanted those leases before he took office. They are not profitable for the most part and he has added zero new ones and won’t talk about opening parts of Alaska, you know, where the oil is.
Is Biden anti-oil? Here is the backdrop:
May 2022
Biden pauses new oil and gas leases amid legal battle over cost of climate change https://www.cnbc.com/2022/02/24/biden-administration-pausing-new-oil-and-gas-leases-amid-legal-battle-.html
March 2022
“Biden officials say they support oil and gas production-The industry is wary.” March 2022 https://www.politico.com/news/2022/03/11/biden-administration-oil-industry-alliance-00016112
May 2022
Biden Administration Cancels Drilling Sales in Alaska and Gulf of Mexicohttps://www.nytimes.com/2022/05/12/climate/biden-oil-gas-lease-sales.html
February 2022
“Biden again proposes eliminating the tax break for oil and gas production” The Houston Chronicle, March 22, 2022
April 2022-
Biden increased price of the government’s cut on federal lands. “The royalty rate for new leases will increase to 18.75% from 12.5%. That’s a 50% jump and marks the first increase to royalties for the federal government since they were imposed in the 1920s.” https://www.npr.org/2022/04/16/1093195479/biden-federal-oil-leases-royalties#:~:text=The%20royalty%20rate%20for%20new,taking%20office%20in%20January%202021. Biden raises the government’s royalty rate after it has not been raised in over 100 years!
Now Biden is calling for a “gas tax holiday” which of course lowers government income and will leak out of your pocket one way or another. Of course, this is done to attract votes. People are not that dumb.
He is also depleting our strategic oil reserves at a time where we are at more risk of conflict than in recent memory. He is draining $2.00 oil and then may have to replace it with $5-$6 oil.
What happened to “no malarkey?
Most people don’t have the information above a convenient form when they run into people that want to know more about energy inflation.
So please forward it to friends and colleagues!
See you soon,
Craig