It might be time to buy a bicycle.
The Biden administration just made an announcement that could send gasoline prices higher and keep them higher for longer. This is a strange announcement that comes after the government earlier this week tried to reduce skyrocketing gas prices.
news that the White House says this Wants to see increase in royalty payments government charges oil companies to drill on federal land, Generally, this seems reasonable because the government is in the midst of a spending bonanza and needs more revenue. It also fits in with the climate agenda of the Democratic Party.
This does not match with the declared will of the administration See more generous petrol prices, announced days ago.
In practice, higher royalty rates are charged from exploration and production companies, such as companies held in the Energy Select Sector SPDR Fund.
Works like this. While many projects will be profitable under the new royalty regime, some will not get the money. Those that do not close will be closed (possibly temporarily), reducing the supply of crude oil in the US
It is important to understand that markets are always made on the margins. Even if today’s announcement will result in higher royalty rates and most oil companies will not change their behavior, some are likely to shut down new drilling projects on public lands or more about investing in oil exploration on public lands. stay alert.
Perhaps the most surprising thing about this is that the release of oil from the US Strategic Petroleum Reserve, announced on Tuesday, will have little effect on oil prices. Therefore, it will have little effect on gasoline prices as the two are joined at the hip.
But keeping oil and gasoline prices higher is likely to have a lasting effect, given the higher royalty rates paid to the government.