Thu. Sep 29th, 2022

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

March 7, 2022

Ukraine war entered the 11th day, carnage in the war zone is unbearable to watch. But war caused pain is shared around the world.

Global energy prices, especially crude oil prices are skyrocketing. “There was even more action in commodities markets today. The U.S. price of oil traded as high as $130.50 a barrel, before finishing the day below $120. That’s still up almost 60% year to date, and the highest for West Texas Intermediate crude since 2008.” Quote from Barrion’s report today.

Translated for the general public in the USA: According to the AAA website, the national average price for a gallon of regular is $4.065, as of March 7. But drivers in California can expect to pay around $5.34 for each gallon of regular, the most expensive in the U.S. The real concerns are:

  1. There is no ceiling of gasoline price in sight.
  2. High gasoline prices drive up the already high inflation threatening the US economy.

Translated for the broad market in the US:

Stocks fell on Monday (March 7, 2022) after ending last week on a down note: The Dow Jones Industrial Average fell 2.4%, around 800 points, while the S&P 500 lost 3% and the tech-heavy Nasdaq Composite 3.6%.

Oil prices, which have skyrocketed in recent weeks, jumped overnight after U.S. Secretary of State Antony Blinken said on Sunday that the U.S. and its allies are considering a ban on Russian oil and natural gas imports in response to the country’s actions in Ukraine.

Investors are now growing increasingly concerned by surging energy prices, with experts warning that could result in higher inflation and potentially slower economic growth.

Of course, global stock markets suffered too.

Biden’s challenges to tame the inflation in the US are mainly focused on slowing the trend of oil price rising. But his options are very limited. He has called the US domestic oil producers to increase production if they wish. But US producers are hesitant to make any investment under Democratic administrations because the fundamental differences in terms of climate and environmental policies. Republicans have advocated, recently, for a complete reversal of Biden’s energy policy. Of course, Biden could not risk a revolt in his own party. Another reason that US domestic oil and gas producers’ hesitance is that the sky-high global energy prices are most likely transitory (and they are making good profits.) Ukraine war will not last forever, when the war comes to an end, energy price will calm down.

The US administration is considering a ban of Russia oil import to the USA. US imports of Russia oil is of very limited amount equivalent to about 5% of US consumption. But Russian oil is needed for blending in refineries for gasoline. Without it, gasoline prices in the US will further inflate and hurt US consumers.

Before banning Russia oil import to the US, additional oil supplies must be secured. The US is counting on:

  1. After a new Iran nuclear deal is finalized, Iran reportedly will be able to instantly ship one million barrels per day. If so, global oil price will stabilize.
  2. Biden administration is actively reaching out to Saudi Arab’s crown prince MBS. Unfortunately, MBS has been openly labeled as a murder and persona non grata to US by the Democratic.
  3. Biden administration is also re-approaching President Maduro of Venezuela because oil property from Venezuela is comparable to Russian oil. US used to import oil from Venezuela, but lately US has labeled Maduro as a dictator and acknowledged Maduro’s political advisory as the legitimate leader of Venezuela.

The best hope is stopping the war in Ukraine as soon as possible!

STH

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