Oil headlines are universally bad.
Oil prices hit their highest levels since 2008, driven first by the global reopening of Covid-stricken economies, then exacerbated by Russia’s invasion of Ukraine.
Global oil prices are up 26% since Vladimir Putin pushed his tanks and trucks into Ukraine and US gas prices have surged more than 60 cents in a week to record highs.
Hyperbole in the energy market abounds. But here are three reasons not to freak out — yet — about rising oil prices.
Breathe deeply
US gas prices are at record levels, but adjusted for inflation they are not there yet.
Economists at RBC Capital Markets note that the record price of $4.11 in 2008 adjusted for inflation is the equivalent of $5.25 a gallon today and say American household savings are robust, which could allow many families exceed these higher prices.
The US is less dependent on Russian oil and natural gas than Europe
Capital Economics says Europe faces its third recession in two years because of its massive dependence on Russia.
Russia supplies more than a third of the EU’s natural gas and more than a quarter of its oil, according to Eurostat.
But Russia accounted for 8% of total US energy imports last year, and in December, the US imported just 90,000 barrels a day from Russia, making it America’s ninth largest supplier.
“The US is relatively safe without Russian imports, but Europe is certainly much more hostage to the Russians for oil,” says Patrick De Haan, head of oil analysis at Gas Buddy.
Of course, oil is a global market. Sanctioning Russian supplies would no doubt harm them all. So are Russian threats to cut off supplies to Europe.
That’s why the US is already pulling away from Russian supplies and scouring the world for other options.
The Biden administration is considering easing sanctions on Venezuela to increase global supply. It is a move aimed at reducing global dependence on Russia and isolating Putin from one of his key allies in South America. (It is not without risk, to punish one strong man by encouraging another.)
At the same time, pressure is growing on the OPEC oil cartel and its allies to turn on the faucets and pump more oil to alleviate any supply shortfalls. (So far, no result.)
We’re not in 1970
The US consumes energy more efficiently today. And the US is now the biggest oil producer in the world.
In a note to clients, Michael Pearce of Capital Economics writes, “Higher oil prices are not a big risk for consumers,” largely due to high household savings.
“We think oil prices would need to go much higher from here to seriously threaten the consumer recovery,” noting that “any impact on consumption should be primarily offset by greater investment in shale production.”
You would think rising oil prices would attract more drilling, but so far, production is still below pre-pandemic levels. It may require incentives, says Gregory Zuckerman, author of “The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters.”
“I’m much more in favor of encouraging American frackers to produce more,” said Zuckerman. “I think there may be a deal we can strike with them to improve environmental production and curb some methane emissions in exchange for a floor in prices.”
“Many of them are nervous about spending too much on production because what happens in a year or two when prices come back down,” he added. Rather than easing sanctions on Venezuela or even Iran, “I prefer to get a lot more production from the US.”
Until then, buckle up.
“We can see energy prices double because Putin realizes he has Western Europe above a barrel,” says Democratic Senator Chris Coons of Delaware.
“This is his biggest conventional, non-military weapon that he can use to push the West back and divide us. It is the weapon he used after he invaded Crimea in 2014 to dissuade our European partners from joining us in tougher sanctions.”
The US has directly sanctioned Russia’s fossil fuel exports, and Europe has unveiled a plan to get rid of Russian supplies.
The message is clear that isolating Russia means cutting the energy revenues that fund the regime. Conclusion: Punishing Putin will incur costs for everyone else.
Energy companies also play an important role here.
Just two years after a price slump caused producers to pay buyers to take worthless oil off their hands, they are likely making huge profits as oil prices soar.
It’s potentially bad optics when consumers and small businesses face higher costs.
Now is the perfect time to invest those profits in the energy transition away from things like Russian oil and towards renewable energy.
Source: CNN Brasil
I am Sophia william, author of World Stock Market. I have a degree in journalism from the University of Missouri and I have worked as a reporter for several news websites. I have a passion for writing and informing people about the latest news and events happening in the world. I strive to be accurate and unbiased in my reporting, and I hope to provide readers with valuable information that they can use to make informed decisions.
