Supporting Domestic Energy Production

Yesterday President Biden announced a U.S. ban on all Russian oil, liquefied natural gas, and coal. The President called the move?"another powerful blow to Putin's war machine.”?According to the Energy Information Administration (EIA), Russia accounts for roughly 8% of all crude imports and refined products, or nearly 700K barrels a day. In total, the U.S. imported 7.86M barrels per day of petroleum in 2020, primarily from Canada and Mexico. Russia comes in at number three.

In 2019,?the United States became a net total energy exporter for the first time since 1952 and maintained that position in 2020 even though both total energy production and consumption were lower in 2020 than in 2019.?At this point, despite?a 4% drop in domestic crude oil production in 2020 from 2019, U.S. crude oil net imports in 2020 were the lowest since 1985.

Energy prices were already on the rise, up 41% from President Biden’s first day in office to the start of the year. The Russian conflict, meanwhile, has only exacerbated the upward trajectory of costs. U.S. crude, for example, has pushed to $123.70 a barrel, the highest level since 2008, while the national average of gasoline prices has soared past the previous 2008 record of $4.09 a gallon to a current level of $4.25 a gallon.

Facing a relentless rise in energy costs, the Biden administration has changed its tune towards domestic energy production, or has it? According to Amos Hochstein, the U.S. State Department's advisor for energy security, the claims that White House policies are holding back drilling are?"nonsense.”?The real culprits are those on Wall Street who are?"insisting on dividends and fiscal discipline in the face of a war in Europe."?In fact, according to Hochstein, the Biden administration is calling on U.S. shale producers to do?"whatever it takes"?to increase supply as the risk of recession rises amid a surge in inflationary pressures.?"If there's a bottleneck it is on Wall Street and that's not a U.S. government problem,"?added Hochstein.?"They should call their financiers and tell them there’s a war going on. The American public is paying the price."

Meanwhile, shale executives point to the administration’s actions over the past fourteen months as an indication of where the President and his party stand on domestic production of fossil fuels. Since President Biden took office, the administration has implemented a freeze on leases for drilling on new federal lands, rejected the Keystone XL pipeline, and promised to?"transition"?away from the oil industry to renewables.

Yesterday, U.S. crude rose 3.6% to $123.70 a barrel.

This morning, however, U.S. crude is down 5.07% at $117.43 a barrel as of 9:59 a.m. ET.

The market remains uneasy with the latest policy decision as investors weigh the likely impact on Russia’s ability to continue its efforts in Ukraine against the likely impact on the domestic economy as an already fragile consumer faces even higher prices.

Equities dropped as much as 203 points yesterday before ending the day down 184.74 points, or 0.6%, to 32,632.64.

This morning, however, equities are trading higher with the Dow up 1.58% at 33,147.88 as of 10:00 a.m. ET.

On the economic calendar, yesterday, the NFIB Small Business Optimism Index unexpectedly dropped from 97.1 to 85.7 in February, the lowest reading since January 2021. According to?Bloomberg, the index was expected to rise to 97.3 in February,

Also yesterday, the trade balance widened 9.4% from $82.0b to a record $89.7b in January. According to?Bloomberg, the deficit was expected to widen to $87.3b at the start of the year. Imports rose 1.2% in January to a record $314.1b, while exports decreased 1.7% to $224.4b.

Additionally yesterday, wholesale inventories rose 0.8% in January, as expected according to?Bloomberg?and the weakest increase in six months.

This morning, the number of job openings according to JOLTS – the Job Openings and Labor Turnover Survey – declined from an upwardly revised 11.4M, a record high, to 11.3M in January. According to?Bloomberg, 10.95M job openings were expected at the start of the year. Additionally, the quits rate dropped to 2.8%, a three-month low.

Tomorrow, the CPI is expected to rise 0.8% in February and 7.8% over the past 12 months, up from the 7.5% gain reported in January. The core CPI is expected to increase 0.5% and 6.4% year-over-year, following a 6.0% gain in January. Also, initial jobless claims are expected to rise from 215k to 217k in the week ending March 5.

-Lindsey Piegza, Ph.D., Chief Economist