It’s hard not to notice how sky high gas prices are these days. Perhaps the universe is trying to tell us something about our personal transportation choices — namely, that the status quo is untenable. This week on Sea Change Radio, Daniel Dicker is here to help us wade through the complex world of oil and gas prices. We discuss the various geopolitical facets that influence the prices of this valuable commodity, compare energy policy and consumer habits between the U.S. and the EU, and get Dicker’s take on how gas prices may affect the 2024 Presidential election.
Narrator | 00:02 – This is Sea Change Radio, covering the shift to sustainability. I’m Alex Wise.
Dan Dicker (DD) | 00:16 – The markets are the markets. The markets decide prices, not politicians, but it always falls on deaf ears, and I don’t expect it to do otherwise in the future.
Narrator | 00:36 – It’s hard not to notice how sky high gas prices are these days. Perhaps the universe is trying to tell us something about our personal transportation choices, namely that the status quo is untenable. This week on Sea Change Radio, Daniel Dicker is here to help us wade through the complex world of oil and gas prices. We discuss the various geopolitical facets that influence the prices of this valuable commodity, compare energy policy and consumer habits between the US and the EU, and get Dicker’s take on how gas prices may affect the 2024 presidential election.
Alex Wise (AW) | 01:30 – I am joined now on Sea Change Radio by Daniel Dicker. Dan is an oil expert, an author, and people can follow his work and writings at DanDicker.com. Dan, welcome back to Sea Change Radio.
Dan Dicker (DD) | 01:47 – Well, thanks, Alex. Always nice to see you.
Alex Wise (AW) | 01:49 – It’s always nice to see you too, my friend. Every time I get, a little anxious at the pump, which a lot of Americans are doing these days, when I see these prices getting into the $6 range out here in San Francisco, I can’t help but think, “why is this happening? And I’d like to know from Dan Dicker, what’s up.” So prices have been moving up steadily since June. You could read a lot of different reasons into why, but what do you attribute it mostly to?
DD | 02:22 – Uh, well, I mean, there is in general a cycle that works through the oil markets. It’s so common and you see it so often that sometimes predicting where prices are gonna go, while it seems to be a magic trick is anything. But, so with oil, what you generally have is, um, you know, the cycling for whatever reason of prices going very high and then very low. When prices go very high, you get the producers running to pump as much product as they can and, and therefore secure as much profit as they can. And the old saying is that high prices solve high prices, prices. So you get an overflow of product and the product overflows demand, and then prices go down, and then prices go way down. And what you have is a lot of producers who are going broke, forced to shut down production, can’t make a living. So you have destructive or destructive nature inside the industry, and then you get a lot less production. And then if you have an event like you’re coming out of a pandemic and all of a sudden demand surges again, you’ll have a lot of demand. But not a lot of producers left who are capable of I meeting that demand, at least not immediately. So you’ll have a lag, and sometimes it’s a lag of six, eight months, sometimes a year before you know, the, the, the, uh, supply can catch up to the demand. And, uh, then you have the spiking in prices. And that’s exactly what we’ve gotten over the last, uh, six months. We’ve had a period of very, very, or relatively low prices that was caused by a number of factors, both fundamental and frankly from, you know, the Biden administration and the Federal Reserve that slammed prices way down and those were unnatural prices. And, uh, they forced a lot of producers to cut back on production. And then when some of those were relieved or, you know, we saw the consumer come back and, and demand go back up, they were not capable of, of spooling up their production. And truth be told, they’re not really willing to spool up production so fast because they’ve sort of been through this ringer so many times that they, they’re sort of, sort of wising up. I mean, I mean, it always amazes me how little they wise up, but I think they may be wising up a little and not immediately rushing to this new demand structure with an enormous flood of supply. But we’ll see what happens in the future. But for now, there is definitely a supply shortage. It’s systemic. It looks like it’s gonna go on for a while. And, um, I do not think that the prices you’re seeing in California or elsewhere are anywhere near the highest they’re gonna go.
AW | 05:04 – And we haven’t even touched on the hurricane season, the climate change related weather events we we’re seeing around the planet as well as refining capacity. Why don’t you expand on those elements?
DD | 05:17 – So in general, when you’re talking historically, hurricane type, um, shortages or, or, or roadblocks are small and they’re short and they’re short-lived, and they may cause a small bump in prices, but over the long haul we can, we can sort of x them out. They really, they really don’t count. Refining capacity is a big deal. And that’s been one of those issues where I just told you about situations where, uh, producers feel, uh, squeezed and, uh, drop back in production. In refining it was, it went one step further. A lot of refiners during the pandemic when there was absolutely no demand. I mean, demand just collapsed from, you know, from entirely underneath them. And they were just losing money right and left refiners, many of them just threw in the towel completely and decided they don’t want to even be in the business anymore. I mean, it’s been just so volatile for them. And to be fair, refining was never a very good business. Even when times were good, producing oil can be a very good business. The refining business happens to be pretty marginal almost all the time. And a lot of these guys threw in the towel. So now you have, uh, in many ways, not just an oil market that’s going up, but an oil market that’s going up, that’s getting led by refined products like gasoline and jet fuel, and particularly diesel, which have been just absolutely just on a moonshot almost long before the oil price went up. And um, what’s interesting is if you look at the refining companies that are left, their stocks have been by far the most profitable stocks to be in, in the last year and a half, two years. Many of them have gone up three, four times because they were like the lone survivors in, in a market space where everybody, a lot of guys had just thrown in the towel. Here’s a sub-sector of energy that was really kind of, everybody kind of ignored them. They were marginal profit makers. They, they yielded for, you know, shareholders, you know, four, four and a half, 5%. And, and that’s what they did. And they provided the country with, with gasoline and so on. And now they’ve become just the best sub-sector in the industry, which to me just blows my mind because for years they were just, they were really stocks that were very, very difficult to gauge. And even when they were doing well, they weren’t doing all that great compared to some other things.
AW | 07:51 – These refining stocks.. can you give us some examples of names?
DD | 07:54 – Well, the ones that are still around, I can give you examples of that includes, you know, Valero and, and, um, um,
AW | 08:01 – How about Marathon?
DD | 08:02 – Marathon Petroleum? Yes, definitely Marathon. Marathon And Phillips would be the ones that I would go to, and Valero. Those are the three that I would talk about. They’re the biggest around right now, I think.
AW | 08:13 – So we’re just talking about American prices because we’re both filling up our pumps on these shores. But we both went to Europe this summer. I noticed a real stark contrast in terms of electric vehicle adoption in Italy. You know, we think of European cars as being more fuel efficient. They’ve adopted diesel for a long time, so they have these tiny little cars, but very few electric cars. Did you get the same impression? And how are the Europeans coping with these higher prices?
DD | 08:47 -Well, I mean, the Europeans have been, um, uh, burdened with 60% higher gasoline prices for as long as I can remember. Doesn’t matter where the oil, you know, the gas price is, it’s 60 to 70% more expensive in Europe. And they’ve been dealing with that obviously, because they don’t have a, , domestic source for oil or refining in those native countries. So everything has to be brought in. And the way that they’ve dealt with it over the years is, you know, simple. They don’t drive the cars we drive. You can go from one end of Europe to the other and, and not then seem, you know, one Ford F-150 in the entire continent.
AW | 09:29 – It’s the most popular vehicle in America
DD | 09:32 – It’s the most popular vehicle in the United States. I mean, you can, I don’t know if you could find one, you know, just out in the wild in, in Spain or, or France. I mean, and if you do, I mean, it’s just to look different because there’s nobody, nobody drives cars like this over there. In fact, if you look at the lineups of any of the major manufacturers, Audi, BMW, Renault, what whoever you look at who also sell in the United States and sell in Europe, it’s a completely different lineup of cars because there’s a completely different audience of people who, who are buying it.
AW | 10:11 – And yet there’s not much of an infrastructure for charging over there. And so you, you, they’re still paying, you know, even if you have a small car, if you’re paying nine, $10 at the pump, that that add adds up,
DD | 10:22 – It does add up. But again, the Europeans, you know, there’s, there’s better mass transit. They walk, they, they go on bicycles in urban settings, and they do it until they’re 90. They walk <laugh>, you know, and when they own a car, they are very careful about where they drive and when they drive and what they’re, where they’re going to. You may have noticed if you drove, drove around Europe like I did, that the, you know, the highways are empty, nobody’s on them. And the reason is because people only drive on highways when they have somewhere specific to go. You cannot get on a highway anywhere in this nation an interstate without getting stuck in traffic. It’s just a different kind of mindset on how you deal with high energy prices. And, uh, you know, quite frankly, you know, without, without saying the most obvious thing in the world, it, it’s, it’s a far better way of, you know, approaching this very critical resource. Uh, and, uh,
(Music Break) | 12:09
AW | 12:14 – This is Alex Wise on Sea Change Radio, and I’m speaking to energy expert Daniel Dicker. So Dan, we are talking about the European mindset when it comes to driving and, and using gas. Seems like that even though they have not adopted electric vehicles the way we have, they’re being conscious goes a lot further in terms of overall carbon footprint per household.
DD | 12:43 – I mean, I try to say this to, uh, Americans on the left wing of which I am a member, I’m a proud member that the efficiencies available inside the fossil fuel burning combustion engine have been barely scratched here in this country. And the ability for this country to, um, conserve the amount of oil, natural gas, um, diesel and all sources of energy has barely been touched. And the reason for that is a national, um, sense of entitlement that has grown from the 1920s, that every citizen in this country is entitled to have dollar 50 gas forever and drive whatever they want, whenever they want, wherever they want. And it’s that attitude that really has brought on the, uh, environmental crisis in this country. And, um, and, and, and in fact has made it less, uh, you know, although they’ve made a lot of strides in terms of alternate energy, in terms of wind solar in Europe, in terms of electric cars, it has really not made it necessary to make that infrastructure investment, uh, required to swap over because they’re so much more efficient in the way that they use automobiles than we do in this country. Um, every system is better. The mass transit systems are, are much better. The, you know, train systems are better, uh, going across, um, uh, uh, long distances and, uh, the highways are better. Uh, it’s just everything. If you’ve been in Europe recently, just everything seems so, so far superior to this country. And, and you gotta wonder why.
AW | 14:42 – Well, we were talking about Biden’s efforts to keep prices down last year. Let, let’s switch to the political realities of gas. It seems like that’s the first place where politicians go to blame high prices is the White House. And this is somehow Joe Biden’s fault, or I, I noticed Brian Kemp in Georgia is putting some kind of tax relief in there, uh, for, for Georgians at the pump, kind of as a, a goodwill gesture, but it’s really very politically charged. I don’t think that’s how it works in Europe. Maybe I’m wrong. What is the reality for someone who sees a $6 price at the pump and wants to blame the president of the United States?
DD | 15:33 – Well, I don’t want to bury the lead because I think this is the most important story. And I’m going to, I’m going to, I want to dig in a little deeper on why this is, but two major points I want to make for your listeners, because this is going to be your lead when you, you, when you have your blurb for this. Um, I think that the greatest threat to Biden, um, losing reelection to Trump, um, is gas prices. And it’s a train that I think he may in fact see coming or not see coming. But, uh, I don’t think there’s any way for him to avoid this train wreck. That’s number one. Number two, there’s obviously little to zero connection between the White House and gas prices. Energy markets work independent of, of every government. What there is a known political nightmare among whoever is in the White House with this entitlement feel that the US public has towards gasoline with the price of gas and the, um, the approval ratings of whoever’s in the White House. And every president knows it. And every president has done whatever drawing or ss p r or whatever to, um, manipulate those prices, particularly around election time because they know how much of a time bomb it is and how, um, destructive it can be to campaigns. And, you know, you can basically, um, when gas prices are high, you could ignore everything else that’s out there. Just the, the general public has a direct line between what they see at the gas pump and who’s in the White House. And that can alone destroy a, uh, a man’s, um, uh, chance at reelection. And I think if anything, um, that, that nobody’s really talking about, short circuits, the ability of Biden to beat, a twice impeached, four time indicted P.O.S. like Trump for, you know, you know, a, a redo. It’ll be gas prices, which is kind of sad, but I, I really think that’s where the danger lies.
AW | 17:53 – And you mentioned the S P R, the Strategic Petroleum Reserves. How effective is that tool and what does it really mean? Can you break that down for us a little bit?
DD | 18:02 – Yeah, and I, I wanted to go through this because there were, you know, tools that were available to, um, the White House to, um, uh, quash or at least, uh, keep, um, uh, oil prices within check during their latest, um, uh, campaigns. So in the midterms, two factors were working very hard to kind of counteract the fundamentals, which were actually pretty good. But they managed to counteract the fundamentals on oil prices and key prices low. And, and one of them is the Federal Reserve was hiking rates from basically zero to now they’re, they’re, you know, five, five and a quarter percent. So those kinds of, uh, rate increases put a lot of pressure on commodities. Um, and they’re designed obviously to, to, to, uh, quash inflation and oil is the biggest p piece of inflation. So, and it, and had a, a grand effect on, on quashing prices for energy, remember last year at this time, and we, you know, we were dealing with prices that were in the 105 to $110 area, and that just got slammed through, you know, the midterms of ‘22, and then for most of ‘23, based on interest rate raises and the very aggressive release of reserves from the strategic petroleum reserve. And, now while many would argue, and I would too, that the, the, the, um, the point of the S P R is to have, you know, this kind of emergency supply for when a country needs it for strategic reasons and releasing it, you know, for political reasons is a bad thing. And I would agree with that. It was a very effective way for the White House to add with the, with the Federal Reserve on keeping prices low. Now, what you have in 2023 was a, uh, you know, a, a lessening of, of the strategic petroleum reserve releases that kind of stopped once the midterms were over. But you did have a major producer, Iran, you know, putting some oil back into the marketplace and kind of, uh, keeping prices, you know, relatively within check. The problem that I see, and why I’m saying that, um, Biden may have big trouble in in 2024, is I do not see a tool, um, that will be able to quash prices now that they’re on their way up. Again, there’s not much left in the strategic petroleum reserve. He didn’t refill it, and there’s not a lot more that he can release. The Federal Reserve, as we say, is already, you know, at five and a quarter percent, how much worse can they make it? You know, can they, can they put another two percentage points? I don’t think so. People are starting to talk about them, you know, having to drop some, some interest rates, you know, over the course of, of 24. And I do not see another OPEC member, you know, all of a sudden coming into the mix. I do not see American producers being able to, to, um, gin up production quick enough to have an effect in the 24 election. And I do not see a major, uh, uh, um, OPEC nation coming in with more production, particularly now that the Saudis and the Russians have taken the lead and have removed over two and a half million barrels a day from the marketplace, basically unilaterally. So…
AW | 21:25 – Why did they do that?
DD | 21:26 – Well, I mean, it’s obvious. I mean, a lot of people think that they’re trying to do it so they can destroy Joe Biden and get Trump back in the White House. And I think that’s, that’s even being too complex, even for, you know, their lizard minds. I mean, the, both of those countries, Russia and Saudi Arabia, Saudi Arabia more, I mean, they’re, they’re 92%, uh, tethered to, uh, oil revenues, but the Russians are 50 some odd percent, you know, tethered to oil revenues.
AW | 21:55 – They’re both petro states.
DD | 21:57 – Yeah, they’re both petro states, and it’s as simple as that. So, you know, whenever there’s an opportunity, when a market is, um, uh, capable of being manipulated, and they have the power to do that, they’re going to do that. And they’re going to drive prices, you know, as high as they possibly can, and they’ll talk the nonsense about stability and, you know, and oil, what, you know, the bottom line is, you know, they want a hundred and, you know, $20 oil and Russia needs it to, to finance a war that’s not going well. And, and the Saudis kind of just want it because, you know, they’ve had, they’ve had some, uh, bad years with pretty low oil prices, and they want to make up for that
(Music Break) | 22:37
AW | 23:24 – This is Alex Wise on Sea Change Radio, and I’m speaking to Dan Dicker. He is an energy expert. So Dan, we’re talking about the political blowback of high oil prices. This is a game we’ve been seeing since the mid seventies when Gerald Ford lost to Jimmy Carter and people would blame him. And there’s a lot of people out there saying exactly what you’re saying, which is oil prices are not tied to the White House, and yet politicians fall into the trap as well. You’ll see Trump will, will tweet out, gas was $3 a gallon under me, and now it’s $4 under Joe Biden, you know, and then Joe Biden will, will come back when oil prices go down. He’ll, the White House will put out a, um, a self-congratulatory press release saying, gas prices are low and unemployment is down. And like they align those things together in the public’s mindset. And it’s this cycle that’s gone on for five decades. Is there any way out of it in terms of steering the public’s mindset into understanding how oil prices really work?
DD | 24:29 – Well, I’ve given up, I mean, especially after five years of Trump, I mean, I, you know, there’s talking about the ability for expertise to have an impact. What can I say? I mean, I’ve, I’ve, I’ve, I’ve given up, I mean, I’ll, I’ll come on any show and, uh, talk to any audience and try to describe it in, in as most logical way as I can, the ability for the White House to affect these markets and the inability of a White House to affect these markets. And they have, they can have some influence, but for the most part, they don’t. It’s, it’s small, it’s fleeting and, and the markets, the markets are the markets. The markets decide prices, not politicians. And, uh, but it always falls on deaf ears, and I don’t expect it to do otherwise in the future.
AW | 25:17 – Well, the first time we spoke, I remember you saying how we need to have, and you’ve written books like Turning Oil Green, a Market-Based Path to Renewables, and you, you’ve been very clear that we need to get off of oil even though you’re an expert in this, this commodity. I remember you saying we need $200 a barrel oil to really hit everybody where it counts so that they make conscious decisions to move away from buying Ford F one 50 trucks or whatever to change their habits. Are you still thinking that that $200 price point, you realize that that’ll have some real pain for those who can’t afford to adapt quickly? But you think that in the long run, that is the path to renewables is, is, is higher prices?
DD | 26:05 – Absolutely. Uh, I just, you know, there’s, there are, there are, you know, there are two ways to, to deal with human behavior, right? You can try and convince somebody, you know, what is, what is right, what is truth, what is, what is the way to live, what is the way to move towards, you know, a solid policy, or you can force them by, by, you know, by hurting them in the pocket. And, and, you know, hurting people in the wallet is a lot quicker than trying to convince people of, of what, you know, reality is particularly nowadays. So, yeah, not only, not only do I think that we have to find a way to, to have markets that stabilize oil prices at a much higher price so that these alternatives can begin to really flourish in a market-based way. But I think you have to do it in the only way that will, that will, um, that will have an impact that will allow it to stay there. And that is by doing all the things that may make your audience turn green. I want oil companies to make massive profits. I want them to be profitable enough that they will now be a part of the solution instead of fighting with the renewable, um, providers and the, uh, investment that’s needed to block that. And that’s using economics as, um, a tool to change behaviors as opposed to using, you know, uh, I don’t know, you know, my ability to convince people of, of what’s going to work and what’s not going to work.
AW | 27:51 – Well, appreciate your insights as always. People can go to dan Dicker dot com to follow your work. Dan Dicker, thanks so much for being my guest on Sea Change Radio.
DD | 28:01 – Thanks, Alex.
Narrator | 28:17 – You’ve been listening to Sea Change Radio. Our intro music is by Sanford Lewis, and our outro music is by Alex Wise, additional music by Lettuce, Donald Bird, and Howling Wolf. To read a transcript of this show, go to SeaChangeRadio.com to stream or download the show, or subscribe to our podcast on our site, or visit our archives to hear from Doris Kearns Goodwin, Gavin Newsom, Stewart Brand, and many others. And tune in to Sea Change Radio next week as we continue making connections for sustainability. For Sea Change Radio, I’m Alex Wise.