The Biden administration's latest gambit to lower oil prices is a push for price caps on Russian oil. The plan was hatched at the recent G7 meetings, and Treasury Secretary Janet Yellen calls it "one of our most powerful tools" to address inflation. But market analysts warn the plan could backfire if Russia retaliates by cutting production. JP Morgan analysts predict if that happens, the price of crude could surge to anywhere from $190 to more than $300 a barrel in a worst-case scenario.
All of this only adds more uncertainty to what is already an extremely volatile oil market. "I know JP Morgan and Goldman Sachs are showing a lot higher prices ahead, with Russia and all the things going on in the world economy," says Jay Young, oil and gas expert with Texas-based King Operating. "I think we're going to continue to see oil in the triple digits for the foreseeable future."
Young tells KTRH that, instead of trying to cap international prices, the Biden administration should be expanding domestic production to increase market supply. "The problem is public companies aren't drilling, because people on their board are saying don't drill, let's go to green," he says. "So private equity companies aren't putting money to work (in the oil sector) like they did before."
While demonizing oil companies as greedy, the administration has also asked them to produce more, implying they are sitting on an active supply. Young explains it's not that simple. "It takes a lot of planning...getting rigs and getting personnel, and doing all the things necessary to get that oil out of the ground," he says. "Before you put that barrel of oil into the tank and it goes down to the refinery, there's a lot that goes into it prior to that."
"But they need to let us produce those barrels," he continues. "If we don't put those barrels on the market, we're going to continue to be under-supply and over-demand, and higher prices will continue to happen."
Photo: AFP