US rig count drops despite higher oil prices
The number of oil rigs operating in the United States fell by two to 574, according to oil services giant Baker Hughes.
Oil prices rose to the highest level since the end of March, due in part to falling US oil inventories and an expected increase in gasoline demand as the US approaches summer. The average price of a gallon of gasoline reached an all-time high of $4.60 on Thursday.
Crude oil stocks fell by 3.4 million barrels in the week ending May 13, defying expectations for an increase in oil supply, and gasoline stocks fell by 4.8 million barrels, much more than the forecast for a 100,000-barrel drop. Crude stocks fell last week by 2.4 million barrels, and gasoline by 5.1 million. The supply contraction occurred despite the release of five million barrels of the Strategic Petroleum Reserve.
This decrease appears to be due to a decrease in the number of offshore Louisiana rigs. The number of rigs in Louisiana decreased, accounting for both natural gas and oil, by three. Texas and Oklahoma added one rig each, although it wasn’t clear in the data whether those rigs were oil or natural gas.
Canada added a total of 15 oil drilling rigs in the week.
The Biden administration said it wanted more domestic oil production, but until recently had refused to auction new leases on federal land. Even as the administration announced the move, it made clear that it despised fossil fuel companies as dangers to the public good.
The administration also raised taxes on oil and natural gas revenues from leased land significantly, from about 12.5 percent to 18.75 percent, an unprecedented increase. No president in 100 years has made this increase.
A number of Biden’s candidates have expressed hostility toward the fossil fuel industry, discouraging investment in the sector by articulating the Democratic Party’s view of it. Last year, Biden nominated the Fed’s top bank supervisor, Sarah Blum Raskin, a former Fed official, who advocated the use of regulations to discourage banks from investing in fossil fuels. He also nominated the radical left-wing academic Saule Omarova, who has also advocated the use of banking regulations to halt investment in fossil fuels, to the Office of the Comptroller of the Currency. Both nominations were defeated when the moderate Democrats in the Senate rejected it.
Perhaps most importantly, large institutions have poured money into so-called sustainable funds that have considered environmental, social and governance factors when making investment decisions. These funds avoid investing in fossil fuels. According to Deliote’s Center for Financial Services, professionally managed assets with ESG mandates swelled to $46 trillion globally in 2021, representing nearly 40 percent of all assets under management. The result is that it has become very difficult to raise money to expand fossil fuel production. Therefore, even oil prices above $100 per barrel do not attract capital to the sector.
On a recent episode of Bloomberg’s Odd Lots Podcast, Goldman Sachs’ chief commodity strategist described investing in ESG as “a sharp tool that reduces capital inflows into a critical sector.”
OPEC + will meet next week and is expected to stick to its plan to increase production target for July by only 432,000 barrels per day, rejecting calls from the United States and European countries for a faster increase.