The spike in oil prices isn't a surprise or a mystery.
We needed prices to go up.
I pay attention to the stock market, the price of oil, and inflation.
My financial security depends on it. Maybe yours, too.
I have owned oil stocks for many years. Like everybody in America, I use fossil fuels. I consider it hypocritical to pretend to be "too good" to own oil company stocks when I am so dependent on their products. I am betting that oil will remain useful for decades to come and that the companies that produce it will be profitable. It might not work out. Saudi Arabia could deliver oil to the U.S profitably for about $11/barrel, if they wanted. I am betting they won't choose to do it because they, like me, want an orderly oil market.
In 2020 COVID slowed the world's economy. Energy use plummeted. People drove less. Businesses closed. Energy stocks were, by far, the worst performing industry sector in the stock market, and had been for seven of the previous 10 years. Oil companies were investing in fracking and weren't able to sell oil for enough money to make it profitable.
The Dow Jones Industrial Average dropped Exxon from the 30 stocks. The whole energy sector was considered a dinosaur industry. The investment story about Chevron, Exxon and the others was that they had squandered money by over-investing in oil production. The companies scrambled to assure investors they were cutting back on exploration and production. Briefly oil was in such oversupply, and the market so disordered, that oil futures had a negative price. Speculators had to deliver oil but had no place to put it.
In 2020 President Trump urged Saudi Arabia to cut back on oil production to help stabilize the world price of oil to keep oil producers solvent during the price slump. That was a good thing to do under the circumstances. Saudi Arabia agreed to do it. They owed Trump. The American government had turned a blind eye to their leaders having ordered the killing and dismemberment of a Washington Post reporter.
The oil oversupply era ended. Our economy recovered in 2021. Biden hasn't persuaded Americans to be happy about it, but employment is up and people are driving again. Businesses are scrambling to make things again. Energy use is up.
Oil prices moved back up. Oil companies that had been losing money can now sell their products profitably. Then, the war in Europe disrupted the oil supply, so prices moved up more. Now Biden is banning import to the U.S. of Russian oil, and that moves prices up even more. (That, too, was the right thing to do under the circumstances.) Companies that had been basket cases are now profitable. Chevron's stock price is double what it was two years ago.
Messages. blog looks at non-verbal messages. The price of oil is a non-verbal message. The price-message two years ago was that nobody in America wanted as much oil as was produced. Divest from oil stocks! Now the price message is that we desperately need our fossil fuels and we will pay dearly to keep getting them.
Gasoline at $5.00 a gallon sends a message. Oil companies get the message that there is money to be made, so they will go back to investing in extraction. $5 gasoline tells consumers maybe their next car should be electric. That message trickles down. People in showrooms wanting an electric car are a direct message to auto companies. $5 gasoline tells some consumers to think twice about buying a Dodge Ram 3500. The political message of $5 a gallon gasoline will be Biden's incompetence unless he can create a very powerful contrary message of it being Putin's fault. It may be too late, and this isn't what Biden is good at.
I have a message about markets. The reason the station is open for business, and that it has gasoline for sale at all, is because the price is $5. If it weren't $5, the station would be closed and there would be a sign saying "out of gas." Chevron stock at double last year's price is also a message to oil company management. It says that investors don't want to abandon a company that made investments in oil production. They want to own such a company.
That is how markets work.
Arlene, thanks. I do acknowledge our enormous use of fossil fuels. Remember, I wrote that I thought that higher gas prices was the cost of democracy and I favor paying it. But the reality is that every American uses fossil fuels. Possibly you own a car and heat your house and use something to cook food. I would say that the transition to electric vehicles--IF we can generate electricity without using the dirtiest of fossil fuels, coal--is an excellent idea. I agree we are in a dangerous place with the planet. The US refusing to use natural gas, with the result that China uses their coal instead of our natural gas, is not actually doing something. Not driving would be doing something. A 5 dollar a gallon tax on gasoline would be doing something. I drive a fuel efficient hybrid and the correct thing for me to do would be to destroy the 2020 vehicle rather than to sell it to someone. If I buy an electric car I would be using some fossil fuels, but I would be passing my 41 mpg car to someone else who might drive it. I hate to waste a $40,000 car, but it would be the right thing to do.
People concerned with the climate--like me and you--have a job to do. That is to convince our fellow Americans to change the incentives regarding carbon. That means a carbon tax combined with a rebate. Such a tax, though, is unpopular. This is a democracy. We don't solve its unpopularity with hypocritically having China or Russia or Nigeria or Canada or Venezuela do the polluting for us. We do it by major incentives to change to green energy. But until we have alternatives, people will drive because they simply have no other choice.
Do you still own a car? If not, great. Good for you! You set a good example. We need more people doing what you do. I heat my home and feel a little bad about it. I wear sweaters and fleese sweat pants, but I keep the house in the mid 60s. And I mostly eat raw food, but I cook, and I get dairy products from the refrigerator cases at Albertsons. Do you cook? Eating most food raw is better for us, I have heard.
I use fossil fuels. I admit it.
I could find any insight in your message other than your individual profitability on oil stocks. You don't acknowledge our absolute critical need to cut down carbon emissions. The IPCC most recent report 2022 clearly explains why we must act quickly, now, today. If drivers get the message they should prefer to sustain our biosphere rather than their use of gas-driven cars. Corporations should get the message and understand that they have to do something about cutting their own pollution with massive truck hauling. Everyone must get the message and you are burying any reference to the catastrophic spot we are in by your laissez faire attitude: your stay calm, it's all going to be ok schtick.