Photo by NASA on Unsplash

There is a lot of talk about being behind the curve! As we await the all-important jobs report, the market continues the lament of how far the Federal Reserve fell behind the curve. The bigger issue is that US oil and gas production has fallen way behind the curve and that’s becoming apparent as we face a winter of discontent in Europe and tight supplies in the United States. Crude oil supplies are 3% below the five-year average. Gasoline supplies are a whopping 9% below average and distillate supplies are at a dangerously low 21% below the five-year average.

The Biden administration is wondering how OPEC could let them down. The Biden administration decided to villainize U.S. oil and gas industry and thought that OPEC would be their ticket to energy price security. They miscalculated hugely and now the United States, like Europe, is at risk of sharply higher prices this winter. The United States should have been the anchor in the global energy markets that could have kept things more copacetic if they were allowed to do their job and weren’t under attack by the Biden administration.

We need look no further than the short-sighted policies of killing the Keystone Pipeline, drilling moratoriums and ESG regulations and the fact that we have seen the lowest amount of federal drilling leases issued since the days of Harry Truman. Remember all those people who said that killing the Keystone Pipeline wouldn’t have any impact on gasoline prices or oil prices? They must rethink that. It is apparent that the United States energy industry needs to be the global savior but it’s difficult to do that under this administration. How can you make major investments when the industry cannot trust the Biden administration?

On one hand, the Biden administration does everything it can to demonize oil companies calling them war profiteers and accusing them of gouging the public all the while regulating them and paying groups to sue them, and now blaming them for not building up inventories. The Biden administration can’t be trusted when it comes to dealing with US energy. If we’re going to ever get out from behind the supplies eight ball, it’s going to take an impressive, massive effort by U.S. energy producers to fill the void in the global market and reduce the geopolitical and economic risk of becoming more dependent on OPEC and Russia.

Yet how can this industry trust this administration? They can’t be trusted when it comes to oil and gas when they openly discourage investment in pipelines and drilling projects and proposed oppressive taxes and excessive regulations on this industry. Promoting ESG which is doing more to discourage investment in the United States than anything. Biden’s policies mean we are not only facing a winter of tight supplies but perhaps decades of tight supplies and sharply higher prices.

Now there is talk that the Biden administration may start to release more oil from the Strategic Petroleum Reserve which at this point are already at dangerously low levels. Continued releases from the strategic reserve may lead to long-term damage to the salt caverns and some of these caverns may be unusable if we continue to draw down inventory. Right now the strategic petroleum reserve cannot respond to a major disruption of supplies if there is an emergency. They can’t do any more than they’re doing. Now the Biden administration, while promising to release more oil from the reserve, knows that they’re going to have to buy that back and we know that they’re going to have to buy it back at higher prices than what they sold it for. Yet the Strategic Petroleum Reserve is not and should not be used as a tool to try to control prices. The Strategic Petroleum Reserve (SPR)is not big enough to even attempt such a venture and it was doomed to failure from the start.

The Biden administration needs to regain the trust of the oil and gas industry. They also must regain trust with the investment world at large to make sure they will not cancel oil and gas projects haphazardly like they did the Keystone Pipeline. The Biden administration has to admit that its rush to get off fossil fuels is backfiring and it is imperative to rebuild trust not only with the industry but with America as a whole. BP for their part is saying that they will target the North Sea in U.S. shell basins to try to increase short-term supplies of oil and gas production.

Diesel prices soared yesterday not only because supplies are tight but because of the French refinery strike. This parabolic move to end the distillate contract is something we’re going to see a lot more of this winter. In the short term this market is way overbought but you must be careful because volatility is going to stay high and the risk of the upside is still substantial.

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