After seven days of losses, US oil companies experienced a boost this week when Mexico suffered a production outage after a massive offshore oil rig fire. Pray for the families of the five lives lost. That platform produced 400,000 barrels a day. The US Brent Oil Fund (BNO) went up 3.4%. West Texas Intermediate (WTI) rose 2.9%. Is it a trend or an aberration?
Let’s examine world events this week. Afghanistan dominated the headlines, but they don’t import or export oil, so the Taliban takeover is irrelevant to this topic. Pfizer received full FDA approval for their Covid-19 vaccine. That boosted consumer confidence in the US economic recovery. Sentiment over that may have moved the needle a bit.
Meanwhile, OPEC voted not to honor a request from President Biden to produce more oil to bring down prices. The refusal is a power move. Pressure from the US will eventually win them over because profits take precedence for OPEC. They might hold production levels for now, but you can expect OPEC wells to start pumping more oil by winter.
September Decisions will Change the Future
The Fed forecast for inflation this year has already been adjusted to 3.1%, despite their stated policy of keeping it at 2%. Increasing pressure on the Fed governors could lead to a rise in interest rates next month. Does anyone really believe at this point that they won’t do it? When (not if) interest rates go up, the dollar will strengthen. Oil prices will come down.
Investor uncertainty and mixed messages from the Fed have fueled market volatility this year in the oil and gas sector. The current infrastructure bill in Congress has several green energy provisions in it, yet very little that will benefit US petroleum companies. That bill has been held up by political posturing, but it will pass by September.
Lower oil prices are great for the consumer at the gas pump. They’re a death knell for a US petroleum industry that’s already on the brink of failing. Lithium, on the other hand, has been rising steadily. Lithium Americas Corp (LAC) is up 30% YTD. Piedmont Lithium (PLL), the primary lithium supplier for Tesla’s EV batteries, is up 87.12% this year.
You won’t find this analysis on any of your charts and graphs. The market impact of Joe Biden’s green energy policy was predicted last November when he won the election. September is when the dominoes start to fall. The infrastructure bill will pass. Continuing inflation will force the Fed to raise interest rates. Oil prices will drop. Start buying lithium if you haven’t already.
Our World will Not Run Out of Gas
Once upon a time, in a world where eight-cylinder automobiles with four-barrel carburetors roamed the highways of North America, old-timers would sit on their porches in the evening and predict that the world would “run out of gas” at some point. The popular opinion was that an apocalypse of epic proportions would follow that event.
Welcome to the new world. Gas-powered automobiles will remain with us, at least for the foreseeable future. 2022 will be the year electric vehicles finally hit their stride. Biden’s infrastructure bill allocates $7.5 billion for EV charging stations. Democrats want another $85 billion, and they’ll likely get it. Oil isn’t running out, but it’s about to become obsolete.