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Opening Day

Updated: Jul 20, 2023

According to AAA, national average gas prices have now fallen for 89 days in a row, well outpacing the decline in raw crude oil and wholesale gasoline.



There are two reasons why this has happened:

  1. The Biden administration has been bleeding out the Strategic Petroleum Reserve.

  2. China’s zero-Covid policy has led to millions of people being locked down and a massive decline in energy consumption.

According to new data from the Department of the Interior, just 126,228 acres of federal land has been issued for drilling during Biden's tenure as President thus far. It's the least since President Harry Truman allocated 65,658 acres of land from 1945 to 1946; according to the Wall Street Journal, the Biden administration has leased fewer acres of land for oil and gas drilling on federal lands and waters than any administration in the last 76 years.


President Biden has consistently worked to pause new drilling leases since taking office-- even as oil prices were skyrocketing. Instead of issuing new land for drilling, Biden has been instead depleting the nation's Strategic Petroleum Reserve.


Yesterday’s 8.4mb release from the Strategic Petroleum Reserve was the largest release ever, and the Reserve is now at its lowest level since October, 1984.

Maybe we should call it the “Strategic Midterm Reserve?” We expect gasoline prices at the pump to remain relatively low until just after the midterm elections. …For the obvious reasons.

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According to Chinese customs data, China bought a total of 2.35 million tons of Russian liquefied natural gas (LNG) in July.


The total amount of Chinese LNG that has been resold to Europe is probably more than 4mn tons, equivalent to 7% of Europe’s gas imports in the half year to the end of June. In other words, Europe is now becoming dependent on Beijing for its energy instead of Russia-- which is funny because it’s, well, it’s still dependent on Russia, isn’t it?


What makes it even worse is that Europe could buy Russian LNG for price X but instead has chosen to pay 2X or 3X or more just to virtue signal to the world that it won't do business with Vladimir Putin. …All the while, Putin collects a premium price due to the new market scarcity he himself created.

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It has become our view that it is only a matter of time before Beijing will change its Covid-zero strategy. We may see an acceleration of vaccination rates and a focus on boosting the elderly or wider availability of treatment pills and a ramp of equipment such as ventilators, but whatever they do, it seems unlikely that their prep work would take more than a few months.


That means their energy consumption will increase, and that’s when China will stop selling their Russian LNG to Europe (because they’ll be using all of their own). When? Probably about the time of complete depletion of the Strategic Petroleum Reserve.

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  • While interest rates in savings accounts at most banks have unfortunately not kept pace with the recent rise in short-term bond yields, we continue to recommend a somewhat higher allocation to cash than usual.

  • We still see private credit and alternatives as attractive.

  • As you can probably tell, we continue to like energy stocks.

Financial advisors will really have to earn their keep through the end of the year. While 2022 has delivered all kinds of action, we see this more like the NFL season-- this week was just opening day-- so please call or email if we may be of assistance. We’d love to hear from you and to help any way that we can.



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