By Dan Murphy
For those of us still paying $4.50 per gallon of gas in the Westchester area, some have wondered, with the War in Iran now in its 4th month, why are we still paying the same price?
The answer can be found in the wise words of Neil Chapman, Senior VP of Exxon Mobil Corp, who made the following comments at Bernstein 42nd Annual Strategic Decisions Conference.
When asked, “Why do we see $90 per barrel oil after the War in Iran is still going on? Chapman explained, “Most people don’t appreciate what’s happened -when you take 11 or 12 million barrels a day of crude oil out of the global market, the market is about 103 million barrels a day. Normally, you would see prices go through the roof, so what’s happened to mitigate that? First of all, the Saudis maxed out on their East-West pipeline, so they are running 5 million barrels a day of crude from the east to the Red Sea, and that can get through the global market.”
“I think what people appreciate less is that there was a lot of unsold oil-Iranian, Venezuelan, Russian -and that has gone on to the market, and mitigated some of the oil lost from the Strait of Hormuz. Most important is what has happened to inventories, which is a telltale of what can happen in the coming weeks. Commercial inventories of crude-they have all run down-supplemented by the release of the strategic reserve-all of that has mitigated the impact-you can model this -we have modeled this.”
“We are approaching unheard of inventory levels-I mean, really, really low levels -you can debate when it’s really going to hit in two weeks or three weeks -but once you get to that point, you will see prices shoot up -once you get to that really low inventory level, prices will go up to $150 to $160 levels-the models will tell you that-once the price gets to that level-demand destruction occurs and prices become so unaffordable.
“For the last six weeks, it has really been mitigated by running down inventories, but it can’t last forever. I don’t know whether it’s 2 to 3 weeks or 3 to 4 weeks-it’s once you get to the minimum inventory levels and all-time lows. We have the largest footprint in the oil and gas business around the world, and it gives us tremendous insight,” said Chapman.
So, President Trump, and here in Westchester, Congressman Mike Lawler, have gotten lucky and evaded a political bomb so far between gas prices and the war in Iran. But they don’t have a lot of time left before the timer goes off and the bomb explodes into $7 per gallon at the pump.
Is that too pessimistic? I hope so, but Chapman makes a lot of sense. At $7 per gallon, the American Economy will start to go into recession and the American people will revolt.
Perhaps that is why President Trump was said to be screaming at Israeli Prime Minister Netanyahu in a recent phone call. Trump knows that he is running out of time, and so does Congressman Lawler.