Ignore the analysts’ misinformation oil slick: Biden is making real progress on energy

S&P 500

3,752.75

+86.97(+2.37%)

 

Dow 30

31,082.56

+748.97(+2.47%)

 

Nasdaq

10,859.72

+244.87(+2.31%)

 

Russell 2000

1,742.24

+37.85(+2.22%)

 

Crude Oil

85.14

+0.63(+0.75%)

 

Gold

1,662.50

+25.70(+1.57%)

 

Silver

19.40

+0.71(+3.80%)

 

EUR/USD

0.9862

+0.0075(+0.77%)

 

10-Yr Bond

4.2130

-0.0130(-0.31%)

 

GBP/USD

1.1302

+0.0067(+0.60%)

 

USD/JPY

147.5500

-2.5400(-1.69%)

 

BTC-USD

19,193.69

+308.59(+1.63%)

 

CMC Crypto 200

435.25

+3.49(+0.81%)

 

FTSE 100

6,969.73

+25.82(+0.37%)

 

Nikkei 225

26,890.58

-116.38(-0.43%)

 

Texas congressman and House Speaker Sam Rayburn famously quipped, “Any jackass can kick down a barn, but it takes a skilled carpenter to build one.” That analogy which is especially apt when evaluating recent energy policies from the Biden administration, including the generally skeptical reaction from industry analysts to President Biden’s most recent speech on oil markets this week.

That reaction shows that energy analysts have slipped on their own oil slick of misinformation. It is always easy for cynical but conflicted industry analysts and commentators to lob politicized beanbags at the administration’s decisions. Sure, the White House may have had ups and downs with some mistakes early on—as well as poor messaging on energy solutions. But listening to these biased industry complaints has increasingly become a tale of two realities.

The prevailing narrative presented by most energy analysts is that of a dire and dystopian global oil “supply shock” outlook. They portray the administration as largely rudderless on energy challenges, politicizing releases of the fast-dwindling strategic petroleum reserves (SPR) to put a band-aid on lowering prices before the midterm elections, unable to tackle supply challenges. They further fault the administration for simultaneously offending the second- and third-largest oil producers, Saudi Arabia and Russia, amidst drastic OPEC+ production cuts and the European Union’s sixth sanctions package to ban Russian oil in December. And they accuse the White House of murdering U.S. energy independence by launching an ESG crusade against oil, blocking pipelines, cutting federal leases and threatening energy companies’ access to capital and the outlook for long-term demand.

But this dystopic vision is grounded in misleading information. Perhaps these energy analysts would be wise to redirect their fire from President Biden and target their skepticism towards the duplicitous Saudi-Russian OPEC+ cartel instead. These biased analysts, who projected that oil would be $400/barrel by now instead of the current $84/barrel, do not acknowledge certain key realities, including:

* The U.S. is now the world’s largest oil producer and needs almost no Saudi oil; as the U.S. has already cut its imports of Saudi oil by over 90% over the last decade to a mere 356,000 barrels a day.

* The U.S. owned Aramco but recklessly gave it to the Saudis when President Nixon and Henry Kissinger panicked in the 1970s.

* Gasoline prices should have fallen recently to match the decline in crude oil, but refineries are enjoying a soaring windfall, with profits quadrupling from 2021 levels. Refiners have added $30 a barrel in refining margins on top of the price of crude—even though 1 million barrels per day in refining capacity was added in 2022 with more coming in 2023. That’s not counting the return of hundreds of thousands of barrels of capacity which was taken offline due to idiosyncratic outages and disruptions the last couple months due to refinery mismanagement.

* The billions of dollars oil producers lost in 2020 was not due to Biden, who had not been elected yet, but due to COVID-related economic shutdowns.

* Federal leases under Biden far exceed those under Trump—with 3,557 permits for oil and gas drilling on public lands in Biden’s first year, far outpacing the Trump Administration’s first year total of 2,658, with record numbers of unused leases. That’s the case even though all federal leases combined account for less than 20% of all U.S. oil and gas production.

* The U.S. already provides more gas to the EU than Russia did at its peak, and now the EU buys 80% less from Russia than they did before Russia’s attack on Ukraine.

* The recent Saudi/OPEC price hike was not justified by oil markets as producers were already making 80% profit margins. Only the inefficient oil producer Russia, with break-even production costs twice that of Saudi Arabia, needed these price hikes, to fuel its war.

* U.S. SPR releases are not political. Every modern president has authorized significant SPR releases, including Donald Trump—who likewise faced attacks from self-serving industry voices. Furthermore countries like Saudi and China maintain their own sizable strategic petroleum reserves from which they released ample supplies at least until this year.

* Biden’s new policy of replenishing the SPR through futures contracts, taking advantage of backward-dated futures markets where oil is hovering cheaply around $70 a barrel, locks in hefty profits for domestic oil producers for years to come—which Riyadh refused to do.

Similarly, contrary to Vladimir Putin propaganda that Western sanctions will lead to energy supply shocks, it is in fact Putin who is willingly withholding both oil and gas supplies. The U.S. Treasury Department has proactively put forward the price cap scheme explicitly to stave off a supply shock come Dec.5, when further EU sanctions kick in, ensuring Russian oil continues flowing to global markets while simultaneously limiting Putin’s revenue.

Any decision by Putin to withhold oil supply after Dec. 5 the way he is withholding gas supply from Europe would be a catastrophic, unforced mistake. He will likely have to reverse himself, much the same way he is now begging Europe to buy more Russian gas after months of blackmail.

And to the great chagrin of many environmental advocates, Biden has been laying the groundwork for a gradual transition to clean energy, not the overnight transformation that boogeyman industry critics have been urging him to make. His speech this week explicitly called for an increase in domestic oil and gas production as well as much-needed permitting reform to expedite the construction of energy infrastructure, particularly gas pipelines which can be converted to green hydrogen pipelines over time.

Perhaps it is even more surprising that many analysts retain any market credibility at all, considering the number of missed calls by many analysts the last year alone. Among them.

* Some denied that OPEC+ was going to have an unscheduled October surprise with a production cutback of 2 million barrels.

* Many believed Saudi propaganda that the kingdom had no spare capacity, when in fact the Saudis are 33% off production levels from two years prior, while refusing to release SPR inventory. * These experts believed Riyadh’s pleas that a production cut was needed to maintain profitability, never appreciating that U.S. technology enables the Saudis to extract oil as far less than half the cost of Russian oil, with low break-evens of ~$22 a barrel.

* They forgot to figure in the massively higher shipping costs for getting Russian oil to Asia, buying into Putin’s “pivot to Asia” mythology. They likewise wrongly believed that gas was fungible and that Putin could pivot from selling piped gas to Europe to China—though he does not have the needed pipelines.

* Many, including JP Morgan, said oil by now would cost $380/barrel

* They underestimated the speed of liquified natural gas (LNG) to backfill for Russian gas to the EU (the U.S. now sells more gas to the EU than Russia did at its peak in February). Fully 86% of Russian gas went to the EU but the EU didn’t need it as much as Putin needed to sell it to them.

* They didn’t imagine that Germany could construct six massive LNG conversion plants in record time to supplement existing 150 bcm of re-gasification capacity.

Evidently, when it comes to energy industry analysts, sometimes the emperor is naked—with these conflicted experts too close to their own biased industry sources, repeatedly mistakenly falling for Saudi and Russian misinformation. Riyadh no longer even bothers to disguise its blatant manipulation of industry analysts. Recently the Saudi oil minister publicly, mercilessly berated a Reuters reporter and banned Reuters from OPEC+ meetings while showering favored analysts he deemed “kind friends” with extensive access during the most recent OPEC+ press conference. No wonder that with so many industry experts on the Saudi payroll or reliant on access to Saudi sources, experts shudder in fear at the thought of crossing Riyadh.

Transcending the industry analysts parroting the heavy-handed misinformation of the Saudi-Russia OPEC+ alliance, U.S. energy policy is quite promising—neither giving industry a blank check nor folding to Saudi blackmail like lawn furniture. If only some industry analysts could get beyond the groupthink that greases their paths.

Jeffrey Sonnenfeld is the Lester Crown Professor in Management Practice and Senior Associate Dean at Yale School of Management. Steven Tian is the director of research at the Yale Chief Executive Leadership Institute.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

This story was originally featured on Fortune.com

More from Fortune: 

The best high-yield savings accounts of 2022

Van life is just ‘glorified homelessness,’ says a 33-year-old woman who tried the nomadic lifestyle and ended up broke

Mark Zuckerberg has a $10 billion plan to make it impossible for remote workers to hide from their bosses

Americans carry 4 credit cards on average. Here’s how many you should have, according the the experts

Reuters

Shale firms discount ‘U.S. put’ as inadequate to lift oil output

U.S. shale oil executive Matt Gallagher this week took a poll on Twitter to gauge sentiment toward President Joe Biden’s offer to stock the U.S. emergency oil reserve at prices around $72 a barrel, to give producers an incentive to drill more. The result: nearly 80% of respondents said they did not expect oil futures next year will fall to a level that would trigger any U.S. purchases – negating any boost from what analysts called the “U.S. put,” or using proposed Strategic Petroleum Reserve buys to set a minimum price for new oil production.

The Hill

Biden roasts Oz: ‘Delaware was smart enough to send him to New Jersey’

President Biden on Thursday roasted Pennsylvania Senate hopeful Mehmet Oz during a fundraiser, saying that Delaware was smart to send the Republican to New Jersey. “Delaware was smart enough to send him to New Jersey,” the president said, noting that Oz went to high school in Biden’s home state of Delaware. Oz, who is running…

Miami Herald

DeSantis cracked down on migrant labor. Then one helped coordinate his migrant flights

A Venezuelan migrant unable to legally work in the United States was paid to help coordinate Gov. Ron DeSantis’ migrant flight program, putting the Republican governor’s high-profile political gambit in conflict with his long-standing push to crack down on undocumented labor.

SmartAsset

Fidelity’s 45% Rule: Should You Really Use It As a Guide to Retirement Savings?

Financial services giant Fidelity has a rule for retirement savings you may have heard of: Have 10 times your annual salary saved for retirement by age 67. This oft-cited guideline can help you identify a retirement savings goal, but it … Continue reading → The post Should the 45% Rule Guide Your Retirement Strategy? appeared first on SmartAsset Blog.

The Hill

Major companies warn congressional leaders ending DACA would hurt economy

More than 80 major businesses and trade associations sent a letter to congressional leaders on Thursday urging them to pass legislation protecting the Deferred Action for Childhood Arrivals (DACA) program as it faces an uncertain future in the courts. The program, which was established by the Obama administration in 2012 to prevent deportations of those…

Barrons.com

Zoom Rode the Pandemic. Now the Stock Is Back to January 2020.

The popular videoconferencing stock was downgraded by Morgan Stanley and fell below its prepandemic price. The good news: The firm thinks the stock could be an opportunity over the longer term as the business stabilizes.

Jalopnik

There’s Only a 25 Day Supply of Diesel in the U.S.: Report

The U.S. is getting worrying close to a nationwide diesel shortage. Bloomberg reports that demand for the fuel is up, but at the same time supply in the United States remains at the lowest level of the season, ever. On the other hand, gasoline prices remain relatively steady. The current average price for a gallon of gas is now $3.82, according to AAA, still considerably lower than the current average price for a gallon of diesel at $5.34.

KERO – Bakersfield Scripps

Ukraine says Russia planning to blow up major dam

A developing story from the war in Ukraine, word that Russian forces have taken steps to sabotage a major dam. It comes as Russia begins a large-scale evacuation of thousands of civilians from a southern city, preparing for what could be a decisive battle. ABC’s Justin Finch has the latest.

The New Voice of Ukraine

Kyiv developer releases free game featuring war in Ukraine

Ukraine War Stories, a video game based on a set of visual stories about the Russian invasion of Ukraine in 2022, is now available for download on the games platform Steam.

Yahoo Finance

Here’s what’s really hurting the economy

We’re living in a world where supply shortages are commonplace and impacting the economy to a degree we haven’t seen for decades.

GOBankingRates

How Much is Indiana’s Libertarian Candidate James Sceniak Worth?

James Sceniak, 34, is a behavioral therapist who is running as the Libertarian candidate for the 2020 midterm election. While there does not seem to be a glimmer of hope that he will win the coveted…

Barrons.com

Why a Higher Stock Price for IBM Computes

Big Blue’s turnaround continues. Also, Wall Street opinions on Ally Financial, J.B. Hunt Transport, Generac, Bombardier, and Wintrust Financial.

Bloomberg

Going Short Colombia Peso Is Top Trade at Brazil Hedge Funds

(Bloomberg) — No currency has been harder hit than the Colombian peso over the past month, and Brazilian hedge funds are partly to blame. Most Read from BloombergTwitter Tumbles as US Weighs Security Reviews for Musk DealsChinese Chip Startup Shows Key Gap in Biden Export CurbsTrump Deposed in Suit by Investors Claiming Fraud in ‘Apprentice’ Videophone PitchesFed-Obsessed Traders Lift Stocks as Yields Slide: Markets WrapTrading desks in Rio de Janeiro and Sao Paulo are piling into short bets on

Zacks

Will Q3 Earnings Boost Alphabet (GOOGL) Stock?

Trading 33% off its highs, one company Investors will want to keep an eye on when it reports Q3 earnings on October 25 is Alphabet (GOOGL). This will also be Alphabet’s first earnings release since its 20-1 stock split in July.

The Oprah Magazine

Stacey Abrams Tells Oprah Why She Wears Purple

During a virtual conversation ahead of the 2022 midterm election, Oprah and Stacey Abrams talked about the importance of voting for your state’s governor.

Zacks

Can Earnings Boost Microsoft (MFST) Stock?

Wall Street wants to see Microsoft produce strong earnings for the quarter and more importantly reaffirm its FY23 guidance as the economic downturn and operating environment has worsened since the company gave its outlook.

Leave A Reply

Your email address will not be published.