Biden announcing a Russian oil ban this morning and pushing an end to remote work while gas is already $4 a gallon
While this is definitely going to raise gas prices, gas price is actually decoupled from demand and we have a lot of oil in reserve that we could release to lower the prices by increasing supply. Gas companies are artificially inflating the price independent of supply because they’re greedy. In reality, Russian gas only accounts for around 8% of oil imports. Biden is definitely fucking up here, but also keep in mind the greed of oil executives and US politicians who invested heavily in energy stocks immediately before the invasion. They see this as a convenient excuse to get rich, blame Biden, and make the conflict seem worse than it actually is to increase defense spending.
Stay angry, but be angry at the right people.
Also don’t forget, the oil companies have a vested interest in making the Democrats look as bad as possible right now, in the middle of the midterm elections. If they can make you hurt at the pump and then get you to blame Biden for it, they can con you into either not voting or voting Republican, and maybe get a Republican Senate out of it.
I find Paul Krugman’s arguments more convincing:
There are three things you need to know about gasoline prices. First, the price of crude oil — the stuff that comes out of the ground — is set in a global market, not country by country. Second, fluctuations in the price of gasoline, which is refined from crude, overwhelmingly reflect fluctuations in that global price. Third, U.S. policy has little effect on world oil prices, and virtually none at all in the short run — say, the 14 months that Biden has been in office… .
… Rising gas prices in America, then, are part of a global story that has nothing to do with the policies of the current administration. Still, can’t the United States have some impact on that global story? We are, after all, the world’s largest oil producer, accounting for about 20 percent of world output in 2020. Can’t America do something to reduce global oil prices?
Yes, in principle. Not so much in practice.
U.S. oil production did increase a lot after 2010 — a trend that, as it happens, began under the Obama administration and continued for part of Donald Trump’s term.
But this had little to do with policy; it was all about new technology, specifically fracking. Oil production then slumped in 2020, not because of policy but because prices plunged during the pandemic. Now it’s coming back, again thanks to events rather than policy. It seems safe to say that nothing either Trump did or Biden did has had any appreciable effect on U.S. oil production, let alone U.S. gasoline prices.
Of course, that’s not what Republicans would have you believe. They want the public to give Trump credit for low prices in 2020, when demand for oil was low because Covid had the world economy on its back. They want voters to blame environmental concerns, which have blocked the Keystone XL pipeline and might block drilling on public land, for high prices at the pump right now — even though it will take years before these policy changes will have any effect, and that effect will be modest even then.
From “Wonking Out: Lies, Damned Lies and Gasoline Prices”, by Paul Krugman, NYTimes, March 11, 2022
What oil companies are doing is profiteering. They make so much profit they could easily absorb any price increases (and oil prices have started to drop again but good luck hearing that being discussed and I’ll bet dollars to donuts we won’t see a huge drop in gas prices despite that)
: the act or activity of making an unreasonable profit on the sale of essential goods especially during times of emergency
On top of that, they have a vested interest in tearing down an administration and political party that has been working to enact environmental protections and address climate change.
Because letting the world burn means more profits for them, and damn the future.
In mid-2014, crude oil prices were about $100, depending on which grade you wanted to buy. Now prices hover near $30—roughly a 70% decline in 18 months.
That’s well-known, but we usually discuss the price collapse in terms of particular countries or companies: we don’t look at the bigger picture.
Last week someone showed me this from Twitter. I almost fell out of my chair.
Stop for a minute. Let that sink in. The total value of all the world’s oil reserves is over $100 trillion less than it was just a year and a half ago.
To put these figures in perspective, consider that Google’s parent company, Alphabet, briefly surpassed Apple last week as the planet’s largest publicly traded company.
Both are worth around $500 billion, depending on the day. The lost value in crude oil is equivalent to a couple of hundred Googles and Apples going up in smoke.
If stock values were crashing to that degree, we would call the losses earth-shattering. Yet otherwise intelligent people are saying the oil collapse is a minor issue.
It is true that the loss of value is somewhat less dire than the raw numbers imply. The companies and countries that own the world’s oil reserves don’t usually value them at the market price.
They mark the value up or down gradually, using long-term average prices or other discount mechanisms. They also account for production costs.
Nevertheless, if your wealth is tied up in oil reserves, your asset valuation is down sharply since a couple of years ago. The collective balance-sheet hit adds up to a staggering amount of money.
It Will Affect Everyone
Set aside the accounting considerations for a moment, though. Economists talk about the “wealth effect” that occurs when asset values go up.
If your stocks, real estate, or other assets gain in value, you derive no immediate benefit unless you sell them. Yet you feel wealthier and more confident.
That confidence changes your behavior, so you spend more freely. You’ll buy that second home, nicer car, or diamond ring. You’ll take more risks with your investments.
The wealth effect is a real phenomenon, and it has economic consequences. In a consumer-driven economy like the United States, higher spending from asset-wealthy people lets businesses expand and create jobs.
Politicians and Fed officials tout the effect as a beneficial consequence of their genius plans. Yet they seldom remind us of the negative wealth effect that occurs when asset values decline.
When your perceived wealth contracts, however, you cut spending and turn cautious. Your altered strategy also has macroeconomic consequences—but sometimes they aren’t immediately obvious.
Why the 2009 Recession Boosted Lawn Mower Sales
I recall reading back during the 2009 recession that lawn mower sales had spiked higher.
That seemed odd at first, but then I understood: affluent people, who had lost jobs or income, fired their yard services and started mowing their own grass. A good move for them, but terrible for yard workers.
So, whatever the audited financial statements reflect, it’s safe to say that the owners of those 1.656 trillion barrels of oil are feeling much less wealthy now.
Their paper losses are affecting their behavior as surely as falling US home prices affected consumer behavior in the last recession.
It isn’t just oil, either; other commodity prices have also collapsed. All the industrial metals—copper, zinc, nickel, lead, palladium, platinum, silver, and aluminum—suffered double-digit percentage losses in 2015. Ditto for coal, natural gas, and iron ore.
Right now, owners of all these resources are experiencing a severely negative wealth effect. They are changing their behavior, and the resulting trends are not good for you if your own wealth depends on their continued spending and investing.
We can’t put an exact number on this perceived wealth loss, but it is certainly in the tens of trillions of dollars—equivalent to a massive, worldwide bear market in stocks. Yet it is happening beneath the radar, almost unnoticed and unremarked.
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While everything is true, what it misses, is the derived wealth that others will realize. Let us say a bushel of grain is $5, and it dropped to $4 because of oil collapse, now that farmer will trade 7.5 Bushels for 1 barrel equivalent vs before trading 20 bushels for 1 barrel, thus realizing a 266 percent increase in his wealth. Many synthetics, dyes, and medicines require oil as seed stock, these are now less expensive even if the companies do not pass on the savings. So the world is much more complicated than the one dimensional version given above.
When an airborne volley of what investigators now believe were cruise missiles and drones laid waste to Saudi oil processing centers Saturday, the price of crude jumped and tremors rippled through the global energy market.Whether it can definitively be established that Iran launched this brazen attack, and whether the United States will respond militarily, remain to be seen. But certain takeaways are already clear. Our view.
