Re Joe Biden, Inflation, Gas Prices (it's kinda long)
-sigh-
When I talk to people, I'm always willing to listen and be receptive but all I can do is assert my point and hope the people I am speaking with are also receptive. I never go into a conversation expecting to change people's mind but just for them to understand my logic and why I got to conclusions I've arrived to.
It's easy to look at the government and say "you're in charge and therefore it's your fault" when it comes to inflation and gas prices. It's easy to say the Democrats and Joe Biden shouldn't have done that last stimulus package, and they flooded the economy with too much money. It's easy to say Joe Biden stopped oil and gas leasing and permitting on federal land and now we have rising gas prices because Joe Biden won't turn on the taps. It's easy to say it's a result of Joe Biden's bad policies or that it's because Joe Biden is constantly bashing the oil companies and making their feelings cry. It's easy to say "here goes Biden again, blaming Russia instead of himself."
My career is in finance. I've been a 'robber baron' banker working across a few specialties in the finance profession. I've dabbled in oil and gas and have learned a lot in the logistics of the oil and gas market but I don't claim to be an expert in the industry. I just know the small part I played. Sometimes I'm willing to explain what I've seen to people who swear to the moon and back they know absolutely why gas prices have risen. This is just my rant because I feel the need to get it out of my system and it fills me with angst.
Globally, the oil industry has gone through several ‘once in a lifetime’ shocks to the system. Going from normal pattern of growth to suddenly an oversupply because of the pandemic, then going to having an undersupply when the world got suddenly active again, and then shutting off one of the largest suppliers (Russia) to a good portion of the global market.
No one can deny that the Russia-Ukraine conflict is having an impact on gas prices domestically. Ignoring that is willful ignorance. I think there is no amount of increased domestic drilling that will make up for exiling the source of 10% of world’s production of oil. People can blame Biden for stopping the leasing of drilling on federal land but on a global stage, that is a drop in the bucket. That cannot make up for an exiled Russia.
The shock of the Russia-Ukraine conflict, on top of the industry’s existing struggle to keep up with global demand is not about just drilling more, the industry also needs to have the capacity to move oil where it needs to be and get it refined to the final product people need. The shock of the pandemic took out a good chunk of the industry’s refining capacity (which by itself can cause increases in price). There are many other players in this oil industry besides the drillers and the big recognizable companies.
In the chain of oil, there are upstream firms (drillers), midstream firms (storage and transporters), and downstream firms (refiners and processors). Oil and gas companies in each of these parts of the chain don't operate perfectly in line with each other. They often operate under different roofs according to their own business needs. Often times, a large part of their strategies are reactionary. They respond to other participants in the oil and gas supply chain. For example, if a drilling and exploration firm announces an expansion in production, the midstream firm reaction to that may be building an additional pipeline in anticipation of the increase. However, just because the drilling and pipeline has expanded doesn't mean there is additional refining capacity available because the refiner may choose not to undertake the investment. Also, not every refinery can (or is willing to) take every type of crude oil. Crude oil is different based on where it is drilled. This is an oversimplified example but imagine that on a global stage with thousands (if not millions) of participants in the industry. The issue of higher prices is not simply solved by drilling more. That is the misconception that people have or rather that pundits are putting out there for people to consume, that this is because President Biden is stopping the drilling. The President has ZERO control over market forces like that. Globally, a lot of refineries closed for good because they became financially insolvent as a result of the pandemic. That's lost global refining capacity that no amount of politics could plan for. That puts an upward pressure on prices.
Pundits say that the government flooded the economy with too much money and people get a measly $3,200 dollars in stimulus and everyone is going wild. One thing they aren't saying is that we've been having a great job market. McDonald's and Wendy's employees actually have negotiating power. People were finding better opportunities for wage growth and that led to people increasing their spending. People started making more money, and therefore started spending more while we still had a supply global chain lag. Sure, people spent their stimulus but they also earned more money. The emphasis should be on people earning more money as the reason for their increased spending far more than the stimulus checks in the inflation discussion. However, it's easier to just point the finger at a few stimulus checks that the government gave to people when they were jobless and stuck in their houses.
Unfortunately, elected politicians globally can’t do much about gas prices because it is a GLOBAL problem. Biden can expand drilling domestically and ease rules to increase production but it won’t help that much despite what any oil exec or political pundit will tell you. The USA expanding production alone can’t make up for Russia’s absence on the global stage. It can't make up for the lost global refining capacity where its needed. The USA, or Joe Biden, alone can't fix it. Politicians in other countries would need to follow suit and also expand drilling and ease rules to increase production as well. It can't be all on the USA. This isn't your grandpa's government or economy. The US government (no matter who is POTUS) just doesn't have much influence of the price like they used to generations ago.
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