Christopher Schwarz

News today that the US is releasing 50 million barrels of oil from the strategic reserve. Market response: Oil price is up 2.6%. Why? 50mm is 2 days of demand for the US and 1/2 a day for the World.

On top of that, now OPEC is upset that the US is trying to lower oil prices, which is naturally bad business for those countries.

There are a few hard truths that the US/CA needs to come to grips with:

1. This is not 1973.
   
2. Oil prices are actually not that high. $78 is not even REMOTELY close to a record high. From 2010 – 2014 oil was much higher than it is today. It just seems high because of COVID shocks last year.
   
3. There is not much in the short-term that anyone can do to impact oil prices.
   
4. Gas prices nationwide are the correct price given the price of oil.
   
5. Prices in California (as I posted last week) are off the charts for tax reasons.

This move today will make no impact when you go to fill up.

I had a first a couple days ago: The authorized amount on my credit card ran out before my car was filled. Gas prices here in CA are at all time highs. The remarkable thing is this is seasonally a weak time.

Here’s a chart of oil prices, US gas prices, and CA gas prices.

There are a few things to note from this graph:

1. CA gas prices, which used to line up relatively well to US gas prices and oil prices, are now very detached. In fact, oil prices are $65 (!!!) per barrel away from a record high, yet we’re at a record high.
   
   Why? CA gas tax has increased a lot. Carbon tax. No new refiners + closed market = demand outstripping supply.
   
2. Related to #1, is this a bad time to mention CA’s gas tax is now tied to inflation? aka the gas tax will go up by probably at least 6% in July 2022.
   
3. Outside of CA, gas prices are high compared to the last few years but still well short of the 2007 – 2015 period average.

We’ll see what happens to prices over the next few months. My guess is oil won’t go too crazy. There is a LOT of supply out there and it will start to come on line at much higher prices.