World Bank To US: Ramp-Up Production
by David Reavill
This week’s Face the Nation on CBS had one principal guest: David Malpass, President of the World Bank. I’ve linked the interview below. You can find it on the Face the Nation YouTube channel.
For anyone who has followed economics in this country, you’re no doubt familiar with the name. Malpass has served in the Reagan, Bush 1, and Trump Administrations. He was Chief Economist for Bear Stearns and had his investment advisory firm. But more than just possessing a wealth of experience. From my point of view, Malpass, in short, is someone who gets it. An economist who understands the crisis we’re in today.
Anyone listening to Sunday’s interview will come away with one message from Malpass, we must increase production to move out of this malaise. He notes that oil production, farm production, and manufacturing must increase.
Increasing production may seem like a straightforward, common-sense approach to the economic shortages we’re experiencing, from truckers running out of diesel in Maryland, to farmers running out of fertilizer, to parents running out of baby formula. We are experiencing a growing list of shortages.
What is remarkable about the Malpass interview is that this puts the President of the World Bank and our Administration at odds.
President Biden has clarified that he aims to phase out carbon-based fuels. And, as we’ve noted many times, he has stopped new oil leases on federal land, halted the XL oil pipeline, and revoked drilling permits for Cook Inlet, Alaska.
Instead, he has released oil from the Nation’s Strategic Oil Reserve and proposed a gas tax holiday. Both of which would expire this fall. And both of which would not increase our country’s overall production. But instead would ease the pain we are experiencing from higher prices. Temporarily.
You rarely see such direct opposition from two major economic players, but here we are. Under David Malpass, the World Bank said essentially, “drill baby drill.” While the United States, under President Biden, dug in his heels and said no way.
This conflict represents a critical point in the interview. One that the casual observer often misses. Malpass has just laid out many ways that inhibit oil production. When the interviewer asks, paraphrasing, “But President Biden has asked the oil companies to produce more? Implying that should be enough to increase production.
To quote Malpass:
“Big problem, and it’s really around the world markets look ahead, and they look at what the regulatory policy is going to be into the future. So if you’re an oil company, you hear the message from all around that, that the-the politicians don’t want your oil. And so- so then you- you drill-less you put you make less of your R&D plans.”
The gulf between what Politicians say and do is a mile wide. And never wider than this with this Administration’s energy policy. After all, nearly every aspect of our lives may be affected by energy. It’s something we all know but may not appreciate unless we’re in a particular field or industry that is affected.
For President Biden increasing oil production is confined to a six-month release of oil from the Strategic Reserve, a temporary reduction in Federal Gas Tax, and the President’s instruction to gas stations to lower their price.
That’s it. Nothing more.
It is a ruse that every oil company in the nation has now seen through. Increasing oil production by just one well would require them to spend millions on obtaining leases, drilling exploratory prospects, capping and extracting successful wells, refining, and marketing. Each well is a multi-year, multi-million dollar venture with no guarantee of success.
Any oil company’s resources, personnel, and equipment are a tremendous commitment.
Under any circumstance, it’s one of the most challenging commitments of any corporation. An all-or-nothing proposition where you could lose millions for the corporation and its shareholders if you’re wrong.
It’s the kind of risk few are willing to take.
Especially when at the end of the day, the Secretary of Energy, Jennifer Granholm, informs you that this Administration’s goal is to transition away from fossil fuels.
There is good news coming out of the Wheat Pits over at the Chicago Board of Trade. Wheat futures hit a four-month low yesterday, trading at just $9 a bushel.
That’s down from over $13/bushel just a week before.
Lower prices come on the news that the US Department of Agriculture reports that this year’s Winter Wheat Harvest is much better than expected. And will replenish some of our meager supplies. All this is even though wheat shipments coming from Ukraine are down to nearly half last year’s levels.
But overall, excellent news from the commodities markets, Wheat is priced substantially lower than just a week ago.
Crude oil, on the other hand, is again marching higher. Saudi Arabia and the United Arab Emirates report they are “maxed-out” on their production. So we can’t expect any more oil from them.
The US will report the latest goods trade numbers today. This report excluded services traded. And once again, we’re looking at alarming numbers. You’ll remember that last December, we reported that the Goods Trade Deficit hit minus $100 billion for the first time. Well, that’s now become the norm. And for the fifth month in a row, the Street expects a more than $100 billion trade deficit in goods.
Also, today we will see the latest retail and wholesale inventories and the newest Case-Schiller Index on Home Prices. We expect this report to be stratospheric, with a gain of over 20% for the year.
In earnings, we’ve already had a couple of companies report. TD Synnex, an information technology company, is trading slightly lower on their results. At the same time, biopharmaceutical company Roivant Sciences is trading higher. Later this afternoon, we will get results from cloud provider: Progressive Software.