As oil prices surge towards a predicted $100 per barrel by year-end, the world faces a pressing energy crisis that threatens to strain consumers and challenge government efforts to curb inflation. The impact of soaring energy prices will force economies to struggle even as you see utility and fuel prices rising to never-before-seen levels.
In this video, we’ll do a deep dive into the problem, how this time it’s different, and what you can expect in the future. We will also dispel some common myths you will hear repeated in the mainstream media and we’ll discuss a new development that just happened last week that will have a drastic impact on our supply chains that’s not being covered in the media. There are solutions that some people can plug in to get ahead of this, but you have to begin moving in that direction today. So let’s talk about it.
THE APPROACHING PREDICAMENT
Already up 30% since June, West Texas Intermediate crude hovers above $90 per barrel, with major financial institutions and experts, including Bank of America, Citigroup, Goldman Sachs, and Chevron CEO Mike Wirth, anticipating triple-digit oil prices before 2024. Factors like robust global demand, continued production cuts by oil giants Saudi Arabia and Russia, low US inventory levels, and the impending winter season, which typically boosts consumption, are fueling this price surge. You may say we have been here before, and we have, so why is this time different?
First, Russia and Saudi Arabia are intentionally cutting production to elevate prices. Saudi Arabia has purely profit in mind. Russia is trying to punish and pressure the West into accepting its actions in Ukraine. The benefactors of cheap Russian oil are the rising economy of India and the struggling economy of China. The fossil fuel resource agreements between China and Russia will permanently reroute supplies for years to come, exacerbating supply. The current production cutbacks and deals result in small price spikes, but they will dramatically be felt when supplies are most needed this winter.
Second, it’s essential to understand that the current international and domestic supply of fossil fuels doesn’t necessarily stay in the country of origin. Instead, it flows to the highest bidding country. Oil companies are for-profit companies that are interested in generating profit. Because of this, drilling and fracking for more fossil fuels doesn’t necessarily serve their best interests, so while thousands and thousands of permits are granted, the ground is often never touched. As of February 2023, there were over 6,600 approved but unused drilling permits on federal and tribal lands. In 2021, 49% of the 25 million onshore acres leased to the oil and gas industry were unused and nonproducing. Offshore, 77% of the 12 million acres leased were nonproducing. So, while these companies are given thousands of permits, they aren’t using them to build supplies because high supplies would reduce profits.
Another primary hindrance to expanding oil production lies in the uncertainty of U.S. energy firms and Wall Street investors regarding the sustainability of elevated prices, which directly impacts their willingness to invest in extensive well-drilling operations for profitable returns. Even if a few countries are dragging their heels, the rest of the world is implementing greener policies. There’s a general acceptance that the current models are not sustainable, and we will see this lack of sustainability in massive price spikes in the coming years. Oil production by U.S. energy companies is essentially flat and unlikely to increase substantially for several years. Investors and energy companies are exploring other possibilities, and those other possibilities are becoming less expensive every year in comparison.
Finally, there isn’t enough oil in the strategic reserve to open that up and solve the demand problem. At capacity and the current consumption rate, there is only a month’s worth of oil in there. That sums up where we are at this point but for a critical part about redrawing supply lines, which I’ll cover in a minute.
You may be saying, “We have seen all this before,” and you would be right. To some degree, all those factors have played out in the complex oil production, distribution, and usage web. We have never seen them all at once, though. We haven’t seen a geopolitical rerouting of oil, production cuts, investor reluctance to drill more, an ongoing war with embargoes, a colder-than-typical set of winters, rising demands, critically low inventories, export bans, and dwindling supplies. Combined, these are a perfect set of circumstances that will change the price of fossil fuels irrevocably and even how we prioritize their use. This is a more comprehensive problem than the high gasoline prices of the 1970s, which were primarily caused by supply disruptions resulting from the OPEC oil embargo, geopolitical events like the Iranian Revolution, increased global oil demand, inflation, speculative trading, and the breakdown of fixed pricing mechanisms. There are similarities, but today’s energy shock has more moving parts. Even if it just had the same set of circumstances at the same magnitude, I don’t think anyone wants to relive the energy shock of the 1970s, and we may be in store for far worse in the coming months. Anyone who says it will be fine to relive that or minimizes that probably never sat in a gas station service line for several hours on an odd or even day to get their gasoline ration.
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NEW DISTRIBUTION DILEMMA
Because of the Ukraine war, supply lines have been permanently rerouted. In a world that produces and consumes approximately 100 million barrels of oil per day and where the companies, princes, and governments that control oil flow are profit-driven, it will flow not to where it is needed but where it can command the highest price. Add to that the complexities of the recent war, and traditional distribution patterns have been scuttled and new permanent trade routes established. Here’s what I think. It’s increasingly likely we will see a hundred dollars a barrel of oil this year, but we could see it much higher than that next year. That will wreck some economies and drain your wallet pretty fast, even if you refuse to drive your car anymore.
What many are overlooking in the news right now is Russian diesel, which will be a massive driving factor of prices in the future. Last week, Russia temporarily and indefinitely banned diesel and gasoline exports to all nations outside of four former Soviet states. While lacking a specified end date, the government decree aims to address soaring domestic fuel prices and enhance the nation’s fuel reserves. It turns out that waging a war in Ukraine requires a lot of diesel. Notably, this move has the potential to exacerbate the worldwide shortage of diesel, as Russia has been exporting nearly 1 million barrels per day of diesel this year, a stark contrast to gasoline exports of approximately 150,000 barrels per day. This development carries substantial implications for global diesel markets, as diesel plays a pivotal role in transportation, heating, and industrial operations, particularly powering a majority of vans and trucks across Europe. So, countries moved to cheap Russian oil, established new distribution channels and contracts for it, and now Russia is cutting those countries off cold turkey.
The shipping industry uses an estimated 4 million barrels of fuel each day. The U.S. trucking industry alone uses 125 million gallons of diesel per day. Diesel is the dominant fuel used in agriculture, accounting for 44% of direct energy consumption on farms. Significant shifts in distribution or drops in production have far-reaching implications. One of the reasons Russia is refusing to export right now is because they are harvesting. You must look at world oil as a giant pool to understand how bad this will be and how it could drive prices wildly higher than $100 per barrel. Shortly after the invasion of Ukraine, many countries aligned to ban the importation of Russian oil and natural gas. A shadowy fleet of tankers sprang up that managed to circumvent many rules and laws to send Russian crude to refineries in the Middle East for resale to India, China, and Brazil. The oil still flowed but in entirely different distribution tributaries. This realignment was permanent, and many countries turned to, and many turned away from US and Western sources of oil.
Turkey and Brazil are currently the biggest single buyers of Russian diesel. Combined, they absorbed 55% of Russian diesel exports. Russian product has accounted for about 78% of diesel imports to Brazil since March. S&P Global analysts estimate the Russian export ban will open doors for higher US Gulf Coast exports and prices, as it remains the most reliable supplier to South America. However, that also means that oil promised elsewhere and drilled in the US needs to be reallocated to South America to compensate for the sudden shortage. That would be excellent business news for U.S. investors, except that U.S. crude oil inventories are why oil prices have recently surged to their highest level in over a year. The inventory levels are critically low, and that’s the current driver of cost. Crude inventories in Cushing, Oklahoma, fell to 22 million barrels in the fourth week of September — hovering close to the operational minimum.
U.S. supplies are so low partly because we use them to stabilize the market. OPEC+ has been throttling back production. Most notably, Russia and Saudi Arabia have intentionally reduced production to keep prices elevated. While the breakeven point on a barrel of oil varies from country to country, it’s between $40-$60 here in the US. Below $60, and it isn’t profitable to drill for more. At $100, it’s profitable, but investors and oil companies are reluctant to commit profits now as they anticipate more green energy, regulations, and supply fluctuations. After all, if they poured money into new wells and new production, then supply stabilized or was replaced with other forms of energy to decrease demand, the price of a barrel of oil would fall below their breakeven point, and they would lose money.
To summarize, before I tell you how bad I think this will get, the global oil landscape, driven by profit-maximizing forces and influenced by geopolitical complexities and shifting distribution patterns, may witness oil prices surging beyond $100 per barrel, potentially straining economies and consumers. At the same time, the overlooked factor of Russia’s diesel export ban exacerbates the global diesel shortage, and low US crude oil inventories pose challenges amid uncertainties surrounding the oil industry’s future.
HOW BAD IS IT?
I try very hard not to make bold predictions on this channel. Instead, I examine the implications of the worst-case scenarios and the fallout from these global changes and attempt to break it down for you to determine what impact these things will have on your life in your location. So, I won’t put a specific price on where we will see a barrel of oil, but if I were to, I would say we will definitely see prices over $100 this year. At the time of recording this video, it’s already at around $95 a barrel, so it’s safe to say that with the supply so constrained and inventories so low, a hundred dollars a barrel is a pretty safe assumption.
But, with the Russian component, reduced production from some of the OPEC+, and these failing new supply lines snapping up available inventories, be enough to push oil prices even higher? I think so. Whether that will be enough to push prices higher than their June 2008 record of $145 a barrel remains to be seen. A global recession compounded that record high after a massive real-estate subprime lending bubble burst. We aren’t too far off from that happening again when you consider the teetering real estate market in China, the retail real estate market in the US, or the fragile recession the entire world is struggling to navigate right now.
So what does $145 a barrel of oil mean to you, your life, and how you prepare? The ramifications of a sudden oil price increase from under a hundred dollars to around $150 per barrel can have far-reaching economic consequences. The first and most apparent is higher fuel costs. You notice that at the pumps. You probably already see that without the Russian component factoring in. That will take another month or more to show up at the pumps. The higher pump prices, though, drive up the cost of transporting goods. It drives up the costs of manufacturing goods. It affects the prices of all goods, services, transportation, manufacturing, and food production. It means increased operational costs for businesses, potentially leading to reduced profitability, scaling back production, reducing workforces, and higher product and service prices. High oil prices can strain the economies of oil-importing nations, leading to reduced economic growth and potentially causing global economic slowdowns. High oil prices can incentivize the development and adoption of alternative energy sources and technologies, such as electric vehicles and renewable energy, as they become more competitive in comparison; however, this also enflames the debates and rhetoric about renewable versus fossil fuel economies. This can create further domestic political conflicts that can lead to drastic government policies or shifts in leadership. Geopolitical tensions increase as countries prioritize getting the supply they need over alliances and agreements.
These record oil prices bring a shift in investing, too. Investors and companies may redirect their resources toward the oil sector when prices are high, potentially leading to overinvestment and oversupply when prices eventually fall. Right now, they’re sitting on their hands when it comes to investing, as I mentioned earlier, but when it gets to record highs, they’ll likely go all in because there’s more cushion for when and if prices fall. Finally, consumers change their spending plans. We all tighten our belts, keep our wallets closed, reduce discretionary spending, seek out public transportation, or minimize driving and heating, and this can all impact multiple industries. Most people think manufacturing and big business make up the Gross Domestic Product (GDP). It might surprise you to know that 70% of GDP is consumer spending. It’s the consumption of things we need and don’t need. When that suffers a sudden and dramatic decrease, it’s easy to see how record-high oil prices can throw us into a massive drop in GDP and an even deeper recession. As consumers tighten their purse strings, the economy slows even further. Consumers spend even less as manufacturers scale back production and their workforces, and GDP suffers.
WHAT TO DO ABOUT IT
So, what can you do about this? What should you be doing now? Shouldn’t we plug in some solutions right now if we can see these storm clouds forming? Well, there are some things you can do to chip away at the overall impact that this will have. The possibility of record-high oil has, perhaps, never been more certain. The effect that will have on our lives is inevitable, but there are ways to lessen that storm’s intensity.
Exploring alternative, cost-effective transportation options such as carpooling, biking, public transit, or just driving less can ease the burden of higher fuel costs at the pump. Of course that’s easier said than done, but if oil prices spike at levels that are being projected, getting creative will be key.
Building a stockpile of non-perishable foods and engaging with local food assistance programs can enhance food security. Implementing energy-efficient practices at home and reducing utility costs can contribute to financial stability. There are quite a few uncertainties about the weather with this super El Nino still forming but already appearing up there with the most robust cycles we have ever seen. You should prepare for winter now by reviewing our recent videos on it.
Furthermore, acquiring new skills, seeking additional income opportunities, and cultivating a community support network can help navigate economic uncertainties. Every challenge is an opportunity to a prepper. Can you develop some skills, whether for yourself, like food preservation, cooking, or gardening, or selling your services like crafting, mechanics, or woodworking to bring in a little cash from a side hustle or stability in your life? Ultimately, preparedness is about adaptability and resourcefulness, empowering you to thrive even in challenging circumstances.
Look, nobody can tell you with any absolute certainty where the price of a barrel of oil will rise to next year, but there are so many signs and indicators right now that we are about to start racing to never-before-seen record highs. As someone focused on preparedness, even casually, you should begin to plug in some solutions now to anticipate this. As we all know, prices continually go up but rarely ever go down. The next few months may see many of these negative indicators coming together to form quite the energy shock to drive oil prices to levels we have never seen before. The time to prepare for that is now.
As always, stay safe out there.
LINKS:
10 Great Depression Skills That Will Pay Well
9 Easy Hacks to Save Energy This Winter (And Stay Warm)
How To Easily Build a 3 Week Emergency Food Supply