Thread by @ArjunNMurti

1 of 16/ Wouldn’t it be simpler for President Biden to just tell the truth about why oil prices have risen, since its mostly not his fault? Here’s a script outline he could consider:

WARNING: Non-partisan parody follows. My apologies in advance to everyone offended.

2/ Oil has a 150 year history of being a deeply cyclical commodity. Buy Bob McNally’s great book “Crude Volatility” that eloquently and entertainingly brings this reality to life. RN, it’s mostly good ole supply/demand.

3/ Oil industry CAPEX was slashed due to traditional investor disdain following a decade of poor ROCE and stock price performance. Shale supply has suffered as a result. Why would anyone buy an oil equity when FAANG + TSLA + Crypto are the future!

4/ Yes the ESG crowd is after Big Oil. But the impact of ESG on 2021-22 oil supply is minimal. This is really about traditional investors demanding a much better ROI. In part because there is legit concern long-term demand could erode as the world considers CO2 reduction steps.

5/ OPEC+ did cut supply when oil fell to -$37 to try to mitigate the worst of the over-supply...kind of like a COVID CARES relief check for the oil industry. OPEC+ actually managed the downturn well in creating some oil price stability in 2H2020-1H2021.

6/ Now, OPEC+ doesn’t want to admit it but they are nearly back to full production. They want us to think they have more oil ready to go so we’ll keep calling them, and protecting key countries.

7/ Yes, my Administration took some high-profile steps in our early days to cancel KXL and delay federal drilling permits, but people please, this was just to appease our progressive environmental wing. It had like zero impact on 2021-22 oil supply.

8/ We do sincerely care about addressing climate change risks. But we are in a box right now because we don’t want to be seen as promoting desperately needed domestic shale supply when we want to reduce long-term CO2 emissions.

9/ So, we are hitting the easy button and blaming those in the Middle East and Russia, which most Americans are naturally wary of anyways.

10/ I was just at COP26 listening to some, ummm, riveting speakers. Unfortunately, some unaccountable UN bureaucracy decided to include domestic oil production in our nationally determined CO2 contributions.

11/ As a result, even though reducing domestic supply would simply lead to higher supply in other countries that don’t care about climate as much as we do for no net global impact on CO2, we are in a bind. Rather than level with you, we prefer to blame OPEC+.

12/ I am definitely not going to touch the 3rd rail topics of banning SUVs or taking any steps to moderate American oil demand. For this, the easy button is blaming evil Big Oil companies. That industry doesn’t even defend itself...easy pickings!

13/ Global bureaucrats have also created an accounting fiction called “Scope 3”, which means we can blame oil companies for your use of their product to live a modern lifestyle.

14/ We won’t blame auto companies for creating SUVs. We won’t mention how the Global South has suffered due to a lack of fossil-fuel enabled GDP growth. We will only blame Big Oil for the negative CO2 externality of fossil fuels.

15/ So, how do we get out of this mess? We all know a real wildcatter drills wells. They don’t do this stock buyback mumbo jumbo. High oil prices are the best cure for high oil prices. That transient stuff Fed governors talk about applies here as well!

16/ Hang in there. I know the American people are tough. We have been through worse. If you don’t like me, remember, we could still have the last guy in charge! And, there are scarier people than me in my own party. And forget it, Manchin will never be President!

PS/ This is not a rebel song or a political post. This is a Twitter opinion, undoubtedly conflicted and surely wrong, on why I think oil prices have rallied. So relax, and save the hate for a future tweet about structural ROCE improvements.

PS2/ I have never tweeted about the Fed…nor should I. I was trying to make a sarcastic comment about the transient nature of inflation, consistent with rest of post. We aren’t out of low cost oil, but there is no appetitive for growth, so oil px gain also likely not transient.

PS3/ Bulk of pushback is on ESG impacting N-T. I still disagree. Reinvestment rates are 30%-40% vs 100%-130% historically. Plenty of self-funding available. No appetite for it as all investors demand cash back. ESG/policy is a L-T risk that can lead to sustainably higher oil px.