Putin's Price Hike- the new pricing matrix we should be looking at
Is pain at the pump the “Putin Price Hike”, or the “Putin Gas Factor”? When politicians say and implement bad policies, should we call them out on it? I am just asking for a friend.
When anything bad happens in a football game who gets blamed? The coach. And when something goes bad for a company the CEO is normally blamed. A war is not immune from this pattern. Just look at some of the best generals in American History and that were forced out of their positions for losing battles.
As I have said the last several years, we are now at a point in time where the fundamental pricing structures are no longer the key pricing matrices. They are still a key part of the foundation of the models we look at, but there are so many influences that can change markets on a dime, or a penny after inflation is factored in. Geopolitical forces, and buying and selling on rumor and fear are all critical components of investor behavior. Couple all of this with the current 'anti-fossil fuel' political climate and you have a new matrix that makes my head hurt.
Even the media is starting to watch several of the new fundamentals and have started asking questions. Yesterday is just one of those examples. Twitter, WSJ, Fox and the Daily Caller were all having interesting viewpoints on the new “Putin Price Hike”. I personally like mine the “Putin Gas Factor” as the new generation of excuses.
Jen Psaki’s video on YouTube has many of the talking points currently used. Jen points out several facts but leaves out some important information. I will only point out one for the sake of time and sanity. While there are 9,000 open permits on federal land, it still takes years to acquire the approvals through the regulatory process on those 9,000 permits. And it is not known how many of those 9,000 permits are actually considered 'low hanging fruit' as far as drilling opportunity goes. With the lack of capital for drilling, oil and gas operators have to be very selective to provide the returns to investors that are required in this market.
As a side note on the cost of drilling, costs are going up with inflation. Cost of steel, lack of employees and regulatory hold ups are just a few. The 'low hanging fruit' has been drying up in the oil patch. The number of DUCs (Drilled and Uncompleted) wells is down dramatically from the 7,500 range in 2020 to 4,372 this month reported by the EIA. This is a significant draw down in the DUC inventory and will have a dramatic impact on the rise in oil prices in 2023. This is one of the supporting numbers my team is using while looking at the new pricing matrix.
On March 29, 2022, Fox Business published an interesting opinion piece titled “A timeline of Biden’s actions on oil and gas reveal where his priorities are”, and the sub heading is “Actions speak louder than words in Biden’s push for more U.S. oil production. The graphic below is a summary and good representation of the anti-oil policies since he has taken office.
The Bottom Line
So, inflation was here before the invasion, and the new term is the “Putin Price Hike”, or the “Putin Gas Factor” as I like to call it.
While you can read many of these same headlines across the web or news sources. It is the new pricing matrix that have my financial and markets team working to define and get a grasp. Not all the news outlets are talking about the new matrix. There is data to show patterns of price influx are starting to show patterns. Getting data on a volatile market is tough but not impossible.
Good CEOs don’t blame others for problems, they look for solutions and set the culture to win. I am answerable to my stakeholders and am helping them look for answers in the new market pricing matrix.
As always check with your CPA if alternative investments are good for your portfolio
Please reach out to our team at any time for answers to your questions.
Jay R. Young, CEO, King Operating
ForbesBooks Author of “The Upside of Investing in Oil and Gas"