October 21, 2021
Earlier this week, I stopped at my local gas station for a fill-up. It’s one of those old-fashioned, family-run stores where they still pump the gas for you and even clean your windshield.
I saw the price per gallon out of the corner of my eye was $3.89.
“At least it’s not four bucks yet,” I said to the station manager as I handed over my credit card.
“Just wait,” he told me. “It’s coming.”
Indeed, $4 per gallon of gas is coming to a neighborhood near you… if it hasn’t already arrived.
Gas prices have spiked to their highest level in seven years, according to an AAA report just released this week.
In some of the priciest gas stations in the U.S., a gallon is already costing $4.50 (or more)… up significantly from just a week ago.
And all indications point to prices rising even higher as we head into the winter heating season…
In fact, former White House economist Stephen Moore told me in this week’s podcast that he predicts “$5 oil at the pumps quite soon.”
You may remember that back in June, I wrote you could expect $75 to $100 oil before the end of the year, and, sure enough, we’re already there. The price of the key U.S. oil benchmark is around $82 a barrel as I write. And Brent crude oil – the international benchmark – is at multiyear highs as well… It’s around $84 per barrel today.
Oil has a direct correlation to gas prices, naturally, so Americans should be prepared for this inflation… at the gas pump and elsewhere.
Policies Have Consequences
The increased demand for oil shouldn’t surprise anyone…
Once the economy got up and running again after having been shut down for a year, we knew people would be itching to travel, more goods would need to be transported, and more energy would be consumed. This was all entirely predictable.
But the current spike in oil prices isn’t just a temporary reaction to last year’s economic catastrophe. Instead, it’s a consequence of the current White House choices.
The Biden administration’s commitment to runaway emotional (instead of economical) policies unfortunately promises to cement these higher prices as the new normal.
As soon as Biden was elected, he signed executive orders that would limit future oil-supply availability. He also shut down the Keystone XL pipeline extension, halting a project that would have massively increased the amount of oil coming into the U.S.
In addition, the administration ordered a 60-day freeze on issuing new drilling permits and leases for federal lands “to combat climate change.” Then, this summer, the White House ordered the suspension of all oil leases in Alaska’s Arctic National Wildlife Refuge.
These moves are constraining the available supply of crude oil just as economic demand is reaccelerating.
And let’s not forget Biden’s big push for green energy and environmental, social, and corporate governance funds (“ESG” funds), which I warned about back in January.
Oil investors must be thinking, “Why should we invest in new oil infrastructure when the administration wants us to shift to greener energy?”
It’s a good question… After all, why should companies put more money into equipment and infrastructure to get oil out of the ground here in the U.S. when the administration has made it clear it doesn’t want American companies to be in that line of business?
And when no one invests in this new equipment, then the price of oil is driven up even further.
Take a look at this chart that shows just how low the current U.S. oil and gas rig count is compared with oil’s price… Normally, when oil prices rise, producers deploy more rigs. And when prices fall, producers pull less oil out of the ground.
But as you can see, this time producers have been slow to respond to skyrocketing prices…
Oil producers are clearly wary about the current regulatory environment, and they aren’t racing to replenish the low supply.
We can see evidence of this in the futures markets, too. The Wall Street Journal reported over the weekend that traders are betting the U.S. oil benchmark will surge above $100 a barrel this year, with some betting that the global benchmark, Brent crude, will reach a record high of $200 a barrel by December 2022. The article also warned of expected volatility…
One sign of the crude-options frenzy: Expected volatility—a measure of how turbulent traders expect an asset to be over a given time frame—has risen alongside prices in recent weeks, upending the typical relationship in which rising prices lead to lower volatility and vice versa. Traders say that is a sign that so many traders are piling into the market that bigger swings are becoming almost inevitable.
So, strangling our oil production via policies that cause investors to not invest puts the U.S. at a disadvantage… from a national security standpoint and, of course, an economic standpoint via inflation.
Earth to Biden: You can be pro-green energy while simultaneously not trying to destroy the oil industry. But for some reason, no one in the White House seems to understand this.
A new system shows which stocks could soon rise 100% thanks to a Connecticut couple’s catastrophic 401(k) loss.
The Fed’s Role at the Pumps
We can’t only blame Biden for the current mess…
The Federal Reserve is equally at fault. The Fed has now printed more than $6 trillion since this whole crisis unfolded. The Fed continues to print money, causing energy prices to move higher (and everything else for that matter), which ultimately depresses the value of the U.S. dollar.
Though the Fed says it will back off its bond-buying program in November, it may be too late. Rates are still low, dollars are still depressed, container ships are still stuck waiting offshore, and the price of everything is going up.
All of this was entirely foreseeable, and that’s the real tragedy…
There’s little that could persuade me to believe that the momentum in oil prices will stop.
As long as the administration pursues a politically motivated (instead of economically motivated) agenda, as long as the Fed continues its money printing via artificially low-interest rates, and as long as the ESG community continues to penalize the oil industry, oil prices will continue to soar.
Our annual Stansberry Conference in Las Vegas is next week…
Like everything else in the world, the COVID-19 pandemic forced us to “go virtual” in 2020.
Fortunately, this year, we’re returning to an in-person gathering at the luxurious Encore at Wynn Las Vegas… The event will take place Monday, October 25, and Tuesday, October 26.
As longtime subscribers know, the Stansberry Conference is a gathering of some of the brightest minds in financial research and beyond…
During this year’s event, you’ll hear from your favorite Stansberry Research editors – like Steve Sjuggerud, Dan Ferris, Dave Lashmet, and more. And of course, we also welcome special guests from outside our business as well. This year, our all-star lineup includes…
- Mohamed A. El-Erian: He’s the chief economic adviser at Allianz and former CEO of PIMCO. Money magazine calls him “one of the smartest investors on the planet.” And he was named to Foreign Policy magazine’s list of Top 100 Global Thinkers for four years in a row.
- John Tamny: He’s the editor of RealClearMarkets, a spin-off of the policy website RealClearPolitics. Tamny also wrote The End of Work, which shows the amazing evolution of jobs. He believes the “end of work” is near. In other words, you won’t want to miss his talk.
- Jaime Rogozinski: You might recognize him as the founder of WallStreetBets, an online community that has tried to take down the world’s top hedge funds. The story was featured on MarketWatch, Bloomberg, CNBC, and everywhere else in the financial media. But you won’t believe what he has planned next.
We know a lot of folks are simply too busy to travel all the way to Las Vegas to join us. That’s OK… With an online All-Access Pass, you can still be “in the room” for everything.
For a small fraction of the cost of an in-person ticket, you can watch the entire conference live from the comfort of your own living room or office. Plus, everyone who claims an online All-Access Pass today will receive a bonus gift valued at $500. Get started right here.
Love us? Hate us? Let us know at [email protected].
Publisher, American Consequences
With Editorial Staff
October 21, 2021