Begging the Bad Guy for Help

January 14, 2022 Updated: January 17, 2022

Commentary

This is what happens when you don’t understand how the economy works.

Or how businesses run.

Early last year, at the beginning of the Biden administration’s reign of terror, the president signed several executive orders that reshaped the landscape of the energy industry. Designed to redirect the economy toward a green/renewable energy path (one clearly not ready for prime time), President Joe Biden made a series of changes that have had an enormous impact on energy prices today.

I usually won’t point the finger at an administration and blame them for economic shifts, good or bad. No president actually controls the price of gas or oil, although their policies do set the tone for what’s to come. And Biden’s policies are pretty much tone-deaf when it comes to the energy needs of the United States today.

Making Life Hard for Business

The most notable action of his first day in office was to effectively shut down the Keystone XL pipeline.

Pipelines are the safest, most cost-efficient way to move energy product. It’s a simple reality of the business. Halting Keystone XL didn’t stop the flow of oil coming from Canada. It simply rerouted it via rail and trucks—two more expensive (and carbon-emitting, I might add) means of transportation.

When you create a landscape that increases costs for business, it’s a disincentive to produce goods. Everyone who’s ever sat in an Econ 101 class knows this. (Maybe the Biden administration also knows it.)

But that wasn’t the only thing he did.

He ordered a 60-day pause on the issuing of drilling leases on federal lands, cutting oil companies’ ability to produce. (He’s also promised to make these permanent.)

He reinstated methane regulations, calling for “substantial reductions in U.S. methane emissions,” which are estimated to cost the industry $600 million for compliance (a death sentence for smaller oil producers).

He’s initiated a study on the effects of closing another pipeline, Line 5, which supplies about 540,000 barrels of oil and gas to the Midwest every day.

He’s looking to eliminate tax deductions and regulatory advantages to hydrocarbon-based producers, including intangible drilling cost deductions and “depletion tax breaks.”

To call these actions unfriendly to the industry is an understatement, to say the least.

Fact of business life No. 1: When the costs of production go up, the costs of the end product will go up as well. The price of oil has skyrocketed from its lows during the pandemic. And as a result, the resulting inflation is hurting everyone at the pump these days.

Trying to Make Nice Again

In recent weeks, the administration has been in talks with oil companies pressing them to increase production. (This effort came, of course, after the White House tried to get OPEC to increase production.)

But apparently they’re bombing at that too.

“It’s important for the American oil-and-gas industry to address near-term energy demands while also recognizing that they need to begin transitioning their companies,” Energy Department spokesman David Mayorga said in December.

That kind of “solve our problem now, while reshaping your entire business to meet our carbon goals” talk literally doesn’t help anything.

But again, they don’t realize this.

In a functioning economy, higher prices are what lead to lower prices. That means only higher prices will spur oil companies to increase production meaningfully.

Eventually, production will catch up with demand and prices will moderate. But in the meantime, rising oil prices will likely be the norm. I could easily see oil prices in excess of $100 per barrel.

From a consumer’s perspective, things are about to start getting a good deal more expensive. But energy investments should profit nicely. Energy-related ETFs such as the Energy Select Sector SPDR Fund (XLE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) should perform well in the coming months.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Bob Byrne
Bob Byrne built a reputation as a daily columnist for TheStreet.com after trading billions of dollars over two decades in financial markets. He now co-authors Streetlight Confidential investment newsletter with Tim Collins that focuses on under-the-radar companies and investment opportunities often overlooked by Wall Street. To discover how to get his proprietary research in the paid newsletter service, go to Streetlight Confidential.