Oil Prices Move Higher To Start The Month

There was hope oil prices would retreat Monday as the Administration started to release oil from the Strategic Petroleum Reserve, but those hopes melted away as Saudi Arabia announced it was increasing the cost for its oil. Because of Saudi Arabia’s announcement, oil price inches up with West Texas Crude trading higher by roughly 4% Monday, in the mid-$103 range. Stephen Schork with the Schork Group told Bloomberg releasing the oil from the reserve will do very little in the long-run to help American consumers.

“The problem here is that it does not address the long-term structural deficit in domestic crude oil production.  That is to say that we’re just drawing down our rainy-day supplies of oil and it’s a short-term fix.  And more importantly, it’s going to discourage future production when we’re taking barrels out of our inventory and dumping it out on to the market.”

Schork went on to say there is very little reason for oil companies to increase domestic production at this point. For example, during speeches, President Biden points out that oil companies made nearly $80 billion in 2021.

“But what he failed to say is the year prior during COVID, they lost $70 billion.  And yes, $75-$80 billion is a lot of money but let’s look at the net profit margin.  For example, for Exxon, they had terrific profits but every dollar that came in 92 cents went out.  So, the company had to invest 92 cents to earn eight cents.”

Schork noted that until that environment changes, there won’t be much of an incentive for oil companies to invest in U.S. oil.

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