I expect high prices will remain for quite some time. Granted, politicians and the extreme media have made it worse, but they are not the sole architect of the problem. Moreover, this problem was not created by a single individual or political party. Although the far right- and far left-wing media outlets are putting their own spin on the issue in an attempt to stir up their listeners for higher ratings, neither side is portraying an accurate picture of the whole. It is an extremely complex issue, which does not lend itself to media sound bites. is also the largest consumer of oil, followed by China. It is significant, but not the main driver of global prices. oil production represented about 20% of total global production. production is relevant, but a smaller part of the picture. MJPīecause oil is a global commodity subject to global supply-demand forces, U.S. The chart below also shows the current level of production as of March 2022 and a horizontal red line to compare current production to the recent past. However, oil production under Biden has increased in every month except February and September 2021. In his first full month in office oil prices fell, perhaps due in some part to his stance on the subject (there is a psychological effect). It’s no secret that President Biden is anti-fossil fuels. When Trump became president, oil production increased until the pandemic hit, when it fell in dramatic fashion due to low demand expectations. Production trended higher during the first six years of Obama, only to decline in the last two. The following chart shows the level of oil production in the U.S. ![]() But for those who are seeking more information, we will discuss it. oil production as oil is priced globally. It would be a mistake to focus solely on the U.S. ![]() This is one of the many factors that contribute to the global price of oil. Airlines may buy futures or options to help lock in a lower price, whereas oil producers may sell futures and options to help secure higher prices. For example, oil producers and airlines have a significant commercial exposure and hedge their risk through energy derivatives. ![]() The price of oil is also affected by the financial markets. Remember, IOCs focus is on increasing shareholder value (profits). Also, when the future price of oil is expected to be higher than the current price, inventories tend to rise as companies store more oil to resell later at a higher price. When production is higher than consumption, inventories rise, creating what we know as oil reserves. Inventories are another important factor affecting the price of oil. I made this point during a recent interview on radio station WBEN out of Buffalo, New York. But again, OPEC does not usually operate near full capacity. However, the monthly average through the first half of 2022 was even higher at 2.89 Tcf. If OPEC is operating near full capacity, which is rare, a risk premium might be added to the price of oil since an increase in production is not attainable. Oil prices are also influenced by OPEC’s capacity.
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