New Energy Weekly – Impacts of High Oil Prices
The Downstream Impacts of High Oil Prices
The current rise in oil price illustrates the global nature of oil production. The narrative you hear about oil is that the current administration is hurting U.S. oil production. And that’s why oil prices are going up. That’s factually wrong…
But oil prices are going up, as you can see in the chart below:
This has nothing to do with U.S. oil production.
Through June 2023, the U.S. produced 2.3 billion barrels. That’s the highest six-month production volume ever. EVER.
The average daily production is 12.7 million barrels. That’s also the highest average daily production volume ever. EVER.
Even with the U.S. production at all time highs, the oil price up more than 32% since July. That’s because oil is a global market. And the OPEC countries conspire to manipulate the oil price.
This summer, there was a huge $10+ per barrel price difference between West Texas Intermediate (the U.S. primary oil price) and the sour middle eastern crude price, according to the U.S. Energy Information Administration (EIA). That meant the OPEC nations got $10 less per barrel – more than a 15% discount.
To counter that, the OPEC countries agreed to cut production. They made a huge amount of news, and it pushed prices higher.
Even as oil prices rise, gasoline prices remain high.
U.S. gas prices remained stubbornly high so far in 2023, even in the face of record U.S. production. And now that OPEC plans to limit the global supply of oil, we can expect gasoline prices to rise as well.
The single biggest beneficiary of higher oil prices (outside the oil industry) will be electric car makers.
According to data from industry trade group Alliance for Automotive Innovation, reported by Reuters, electrified vehicle sales accounted for 8.9% of the U.S. market during the first half of 2023. That’s up 2.6 percent over the same period last year.
And now there are more options than ever to choose from. Tesla still leads the field. However, now there are electric Cadillacs, Mercedes, and several electric trucks to choose from. We can expect higher fuel prices to continue to drive EV adoption in 2023.
And as more people move to electric vehicles, it advances our narrative that the electric economy is the best place to invest for the next decade.
For the Good,
The Mangrove Investor Team