Saturday, May 31, 2025

OPEC

Lower energy costs have a cascading effect on the economy. The farmer uses diesel to plow, to plant, to cultivate and then send the wheat to the grain elevator. Next it is sent to the flour mill which then forwards to the bakery and finally to the retail outlet. People use gasoline, truckers and rails and ships use diesel and citizens heat and cool their homes while industry uses power to build and operate plants. Electric power from nuclear plants is $32 per megawatt hour and natural gas is $50. The point is that lower cost oil and lower cost electricity means lower cost for goods. Trump is now facing a dilemma. Putin wants to keep the war going which leaves Trump with the only option and that is to sanction Russian oil. This will hurt Putin but it will raise the price of oil since Russia exports 4.5 million barrels per day. Trump could be helped if OPEC would pick up the slack. He has some influence over OPEC since they rely on the US for protection. The question remains, if oil went to $100 would OPEC want to produce more to lower the price.

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