How Gas Got So Expensive.
After a cold, long winter, it’s at last beginning to feel like spring around here. Time to get out, maybe take a little drive, see the country.
At least that’s how I felt before I took the family car to the gas station. At $4.25 a gallon, gas here in Pennsylvania is double what it was just a couple of years ago.
So, it’s costing me about $50 to fill up the tank in the small car. And I haven’t dared fill up the truck yet.
Now in just a few minutes, the Energy Information Agency, the EIA, will give a whole raft of reports on this week’s oil production. And all the various oil products. From gasoline to heating oil, jet fuel, and diesel.
And, as you’re no doubt aware, the news about gas and oil prices going forward isn’t good. Aside from the dramatic hike in gasoline prices that we’re all experiencing.
There’s the recurring rumor that we’re running short on Diesel here on the East Coast. That rumor is true incidentally. And the apparent fact is that there doesn’t seem to be any relief in sight.
So here are four quick facts to keep in mind next time you’re filing up.
Fact 1. the US is not producing as much oil, as it did before the Pandemic struck. In March of 2020, the month the Pandemic first hit, US Oil Production hit an all-time record of 13,000 barrels of oil per day.
The pandemic immediately dropped our production by 25%. US Oil production has recovered, but only partly. Current production levels are still about 2,000 barrels below that 2020 level.
Fact 2. We only have one-half the refinery capacity we had before 2015. A series of accidents and environmental issues have closed half the refineries up here in the northeast.
Including Philadelphia’s main refinery, which had been operating since 1870. This lack of a refinery means that even if we were producing enough oil, we still couldn’t refine it and bring it to market.
Fact 3 In reaction to the Ukraine Incursion, the US blocked all Russian imports of oil. This effectively cut off 10% of our supply.
Supply, incidentally was not entirely replaced by the President’s release of gas from our Strategic Reserves. A release that is scheduled to end in less than six months.
Fact 4. The President has halted all further oil exploration on Federal Lease Lands. Representing a majority of all proven reserves in the country. Most recently you’ll recall President Biden veto new oil leases on the North Slope of Alaska and in the Gulf of Mexico.
Among the many reports that the EIA will release will be a report entitled: Gasoline Stocks Change. This report tells just how much gasoline the nation has on hand.
And for the seventh week in a row, and 11 out of the last 13 weeks, Wall Street expects that today’s report will show we have less gasoline on hand than the week before.
Of course, reduced supply results in higher prices. And that’s just what we’re experiencing.
For all of us, it’s fair warning that things are going to get a little tight around here as the summer unfolds.
Todays Market
In overnight headlines, Japan reports that their economy actually contracted for the latest quarter. Japanese GDP fell 2/10th % tied with Italy as the 4th weakest of the major economies in the world.
The Weakest economy currently is the United States, which reported a decline of 1.4% in our GDP for the first quarter of 2022.
It kind of makes you wonder about Fed Chairman Jerome Powell’s comments last night. In an interview with the Wall Street Journal, Powell responded that our economy is currently strong. And he would not hesitate to raise interest rates. We can take it.
One wonders if he’s looking at the same macro numbers as we are. But I digress.
Japan has been flirting with a very weak economy for some time. Having spent most of 2020 in negative territory.
And aside from that spectacular second quarter of 2021, when all the nation’s rebounded. Japan’s economy has been relatively flat, barely above the contraction we see today.
And that’s the story of the global economy. Twelve of the major economies in the world have a growth rate currently of less than 1%. And seven of those countries have economies of zero or negative growth.
I’m afraid that we’re watching a worldwide economic slowdown.
In other Global news this morning, Great Britain reports the highest inflation rate since 1982. And again, the principal driver of this is the cost of energy. In spite of Britain’s north seas oil production, its gasoline, motor fuels, and electricity drove inflation higher in the UK.
In fact, the price of oil has continued its upward march this morning. With West Texas intermediate, the chief American oil, up 1 ½ this morning to $114 a barrel.
Now a little later this morning we will get our latest look at the oil complex in America. And as we note, Gasoline Stocks, in particular, are expected to decline once again this week.
In real estate, this morning’s report will be on housing starts and building permits. The very beginning step in home construction.
And, although the changes are expected to be minor, still Wall Street is predicting a slight cooling in Real Estate markets.
Then at lunchtime on the East Coast, will come the announcement of the Russian GDP Growth Rate for that first quarter.
Wall Street estimates that the Russian economy grew at a 3.4% rate.
If that turns out to be the case, it would mean that Russia would tie Australia as having the fastest growing economy in the world for the beginning of 2022.
Again, the exact opposite of what you might expect in reading the American press.
In earnings this morning, we have three major retailers reporting shortly.
They are home improvement store, Lowes, discounter TJX parent company of TJ Max, and department store Target. All three are indicating lower openings. With Target looking especially weak right now.
After markets close in New York, the major tech company Cisco Systems will report its results.
Have a great day!
