The Morning Rant: Minimalist Edition

The cost of energy is an integral part of our economic outlook, and because of rising domestic production, which decreases inflationary pressure, energy's impact on inflation is moderating. Couple that with increased employment in the industry, increased tax receipts for government, and domestic energy production is an unalloyed good thing. Environmental impacts from production are minimal and manageable, and modern IC engines and power plants are incredibly clean.

According to the Department of Energy, petroleum contributes about 8% to our GDP, which is a lot, but not catastrophic in the event of a downturn. Compare that to Russia, whose petroleum industry contributes about 20% and provides a huge chunk of their foreign exchange. So a decrease in oil prices has a far more significant effect on Russia than it does on the United States. Oil is Russia's lifeblood! If prices fall, they must pump more oil to maintain their spending on many things, including their little adventure in eastern Ukraine.

Oil falls as OPEC+ plan adds to expectations of supply surplus

In a meeting scheduled for Sunday, the Organization of the Petroleum Exporting Countries and allies including Russia, together known as OPEC+, will likely approve another oil production increase of at least 137,000 barrels per day, three sources familiar with the talks said.

Goldman Sachs on Tuesday said that it expects OPEC+ to raise oil production quotas by 140,000 barrels per day for November.

[Five Year Price Chart of West Texas Intermediate]

So why is that important? Because we can supply a huge amount of our domestic usage, while still exporting 10 million barrels/day. That decrease in oil price helps us domestically far more than it damages our export revenue. Contrast that with Russia, which depends far more on that export revenue. Sadly, a decrease in oil prices helps net importers...like China! But the more immediate impact on Russia's financial health might be more important. Will it pressure Putin to accelerate his Ukraine sojourn? Or maybe it will provide the impetus for some sort of negotiated ceasefire or peace treaty. Or maybe he will simply pump more oil and try to make up the difference.

I doubt Russia pays attention to the OPEC+ production restrictions anyway. Putin will pump what he needs to sell, regardless! But that is a nasty little feedback loop. Pump more, drive prices down, so he needs to pump even more! All the while his petroleum infrastructure is decaying, and he can't buy a lot of equipment because of sanctions!

By the way, Qatar exports most of their petroleum, so they are quite vulnerable to price decreases. It would be a shame if the Emir of Qatar would have to cut back on his funding of Hamas, Islamist programs at American universities, Tucker Carlson, and Al Jazeera!

[Crossposted at CutJibNewsletter and X/Twitter]. If you folks who are on X/Twitter would follow us it would be much appreciated!

posted by CBD at 11:00 AM

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