On Inflation and the Economy

Here are links to some news stories from today about inflation. After
that I give the link to an article from WashingtonMonthly which is more
extensive and includes important history.

https://www.reuters.com/business/energy/which-us-refineries-have-shut-since-global-pandemic-why-2022-06-17/

https://www.reuters.com/business/energy/venezuelan-oil-cargo-eni-departing-supertanker-load-next-document-sources-2022-06-17/

https://www.bloomberg.com/news/articles/2022-06-15/biden-willing-to-use-emergency-war-time-law-to-boost-gasoline

https://www.bloomberg.com/news/articles/2022-06-19/massive-oil-refining-capacity-idle-in-china-even-as-prices-soar

https://www.bloomberg.com/news/articles/2022-06-09/yellen-rejects-idea-corporate-greed-is-to-blame-for-inflation


https://washingtonmonthly.com/2022/06/20/its-the-monopoly-stupid/


If you read these you will see that the Bloomberg and Reuters stories
explain what is happening NOW. That's the nature of "news". it's what is
"new". But, to understand our economic situation better you need some
historical perspective and it gives a very different impression. That's
where the WashingtonMonthly article finishes the puzzle.

That said, the WashingtonMonthly article is talking about economics and
not Russian influences on the Republican party and so many of the things
we see tied to Donald Trump. Still, it's a very good article with its
focus on the issue.


I have no idea why Janet Yellen would say corporate greed isn't the
issue. It is very much at the heart of the issue.

What About OIL ?

I'm going to review things to do with oil and gasoline prices. First, we start with some basic information. These charts are for the last 5 years. The recession is marked with the gray vertical bar on the graph.

Saudi Arabian Oil production (care of investing.com)

This seems to go up & down as the demand for oil fluctuates with economic activity. But, it still hasn't risen to pre-pandemic levels.

U.S. Crude Oil Production (care of investing.com)

This isn't entirely leveled-off. It's kept rising some, as the economy shows strength.

Crude Oil and Gasoline Prices (care of investing.com)

This seems to make no sense past about 2nd or 3rd quarter of 2022. Why have prices kept going up when production is leveled-off?

If prices had leveled off around there or a little before, say March 2022, then it would make sense. But, between January 24th and February 24th, Vladimir Putin decided to go to war in Ukraine and that caused oil to become much more in demand and higher priced. A lot of the world banned purchase of Russian oil and that shrank world supply.

Stock Market -- Dow Jones Index (care of money.cnn.com)

The DOW has done alright in recent years, with the big dip in 2020 being overcome by about the end of that year. It reached a peak in about October 2021 and it seems to be coming down now. Is this an indicator of where gasoline prices are going to go?

25 January 2022 -- OPEC and its Russia-led partners have promised to increase oil production to pre-pandemic levels this year but are falling short of those public commitments, stoking fast-rising global crude markets.  https://www.wsj.com/articles/opec-russian-oil-output-increases-fall-short-of-promises-stoking-prices-11643108001

How much has world oil supply been reduced by cutting off Russian oil? One article said about 10%. Russia supplies a bit more than Saudi Arabia. And together they supply about 40% of the world's demand (20% each). Is Vladimir Putin practicing economics by having a war to raise demand for oil and cutting supply to the world to raise oil and gasoline prices?

Russia Invaded Ukraine 24 February 2022 (care of Wikipedia)

So much for Russia and OPEC increasing oil production (and in effect decreasing prices). What happened between January 25th and February 24th to convince Vladimir Putin to commit to war i Ukraine? Was he afraid of Ukraine developing natural gas which would supply Europe and reduce the value of Russian oil?

4 May 20?? -- Oil prices have soared. Why won't OPEC bring them down?  https://www.bbc.com/news/business-61188579

/quote-from-article

In 2016, when oil prices were particularly low, Opec joined forces with 10 non-Opec oil producers to create Opec+.

Among them is Russia, which also produces over 10 million barrels a day.

Together, these nations produce about 40% of all the world's crude oil.

"Opec+ tailors supply and demand to balance the market," says Kate Dourian, of the Energy Institute. "They keep prices high by lowering supplies when the demand for oil slumps." Opec+ could also lower prices by putting more oil onto the market, which is what major importers like the US and UK want it to do.

Image source, AFP

/end-quote-from-article

It may seem trivial, but it would appear that the trend in America toward renewable energy supplies and away from oil have led the Saudis to put in charge a leader Salman who is happy to switch away from partnership with America and into a strange arrangement with Russia (Vladimir Putin for now). The murder of the journalist Khashoggi has also estranged Saudi Arabia from America and the fact-finding that Salman ordered the murder of Khashoggi has only pushed him away from America and toward Russia. With this new order of things, what are the economic reasons to produce more and keep prices low or steady? If America continues on this trend to replace oil/gasoline, then what might the OPEC+ countries do to harm us?

It seems more necessary than ever to see that Russia loses in Ukraine and that Putin is retired. Whether a replacement is more friendly to America or Europe is almost irrelevant. Perhaps the state of affairs in Saudi Arabia is more relevant since we have a standing defense relationship with them and we have sold them a lot of military equipment.

The transition from oil and other fossil fuels to renewable energy sources is going to take a while and will have many consequences. High gasoline prices and war in Ukraine are among them.