Banks Boycott!

With President Joe Biden coming in, it appears fossil fuels are on their way out. In one of the most substantial threats to the global economic recovery, Biden's war on fossil fuels is already having an impact on oil prices and the threat is increasing as more banks are boycotting investment in fossil fuel projects which will cause higher oil and gas prices and be a drag on US economic growth. Yet is it a good policy or even legal that banks can conspire as a group to try to force an industry to go bankrupt? That may be a question for legal scholars but the Trump Administration sees it as the threat that it is.

In the last hour rule, the Office of the Comptroller of the Currency issued a rule Thursday that would force banks to lend to gun manufacturers, oil drillers, and other controversial industries that some have refused to do business with. Many banks have shown their anger and displeasure with the rule but it is critical that the US energy industry, that is such a vital part of our economy, should not be demonized because of political correctness and without due process.

As more banks look to boycott US oil and gas companies, it will be the small shale oil producers that will bear the brunt of the pain. In other words, the much-derided “Big Oil” companies will become bigger and stronger while smaller independents will crack under the weight of more regulations and the inability to secure capital. That is one of the reasons that Exxon Mobil has surged in stock prices in recent days.

It is also one of the reasons that the Saudis were open to cutting oil production because they have lost their fear of the US shale industry. Shale oil was a nemesis of the OPEC cartel and now it seems that the Biden Administration shares their disdain for shale. Maybe for different reasons, but the result will be the same. Big oil will get bigger and OPEC and Saudi Arabia will get stronger.

U.S. consumers of course will see what is left of their disposable income go into their gas tanks with more of the profit going to foreign oil producers, The market is also going to have to watch President Biden's actions with Iran. The President elect has signaled his desire to rejoin the Iran nuclear agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA), a love that could lift sanctions on Iranian oil which would be another blow to smaller US energy producers. 

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