According to Atlanta Fed we're already in a recession

https://www.cnbc.com/2022/07/15/millennials-are-to-blame-for...

https://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021...

Out of all the possible announcements they could make, even if they were 100% certain the economy is headed for a downturn, the absolute worst would be "We expect a recession in the next 6 months."

Part of the Fed's job is to keep the economy balanced, and a huge part of that job is messaging and weighing the likely effect of the message vs the desired effect the Fed wants.

So they're not in the business of lying... but they're also not in the business of loudly trumpeting pessimism from the rooftops.

If oil companies slowed down their drilling, easily accounted for by decreased demand caused by a massive recession. The President had nothing to do with it.

https://rigcount.bakerhughes.com/

https://tradingeconomics.com/united-states/crude-oil-rigs

[1] https://www.reuters.com/article/us-usa-fed-trump-tweets/trum...

Factor two is ESG initiatives starving the sector of financing/investors.

Factor three is other shareholders demanding cash returns after seeing tons of capex get burned the last go around.

Factor 4 is the industry turned off during Covid (didn’t get a bailout like airlines) and now has to ramp back up.

Don’t ask me to weight these but like the argument around what caused inflation it’s not one thing, but several working in concert.

Why the dramatic rise in gas prices? Two-fold - refineries were end-of-lifed during the pandemic, which reduces supply, and then the lockdowns were lifted when the Covid vaccines became widely distributed, which had the result of increasing demand. Reduced supply + increased demand = higher prices. Throw in the Ukrainian War which has introduced uncertainties in the global oil market and so you have raw material costs increasing as well.

The lockdown and implosion in demand created massive swings in demand and inventory. Crude oil production is a secondary driver, the primary driver of gas prices is end product (ie gasoline and diesel) inventory.

There isn’t a ton a competitive pressure to invest billions in capital to activate refineries when your margins are so high and competitive forces are weak.

Hubris. This is not what happened in the slightest.

Oil is traded on a global market, the little impact domestic production has on the price of oil is due to its contribution to global supplies.

The only domestic industry that has an impact on local capacity is refining.

Here is what happened: the fracking boom that began in the early/mid 2010s led to an oil glut as OPEC kept production high in order to drive out domestic US producers from the market (the shale producers had a higher cost structure and needed +$60 oil to break even). This strategy worked even before Covid, and once Covid hit, oil traded negative for a short period.

During 2021 oil inventories slowly drew down. Yet, given the experience of the latter half of the previous decade, US producers have been understandably hesitant to invest. Obviously the Biden administration did not disabuse them of this notion, but the effect of their actions is consistently overstated. Shale companies had been failing since before Biden even declared his run for president.

The war in Ukraine was then a precipitation even for oil prices to spike, but the biggest impact on gas prices has less to do with oil production challenges (though that was impacted) and more to do with refining.

Crack spreads (the difference in profit between refining a barrel of oil into gasoline vs other distillates) hit record highs this year. The value of refining diesel and jet fuel was higher than refining gasoline, when it is usually the reverse. This can be pretty clearly traced to, on the one had, a rapid rebound in air travel, and on the other, shifted supply chains from Europe where diesel is the primary fuel for passenger vehicles (though I’ll admit that the latter is more speculative on my part).

Biden announced policies related to new drilling starts but none of that impacts pricing or output to the degree you’re suggesting it does. There was no “shutting off” of production for sure so consider this a serious argumentative point?

2025 is a number I made up for discussion. I have no doubt you can find places where it is wrong for some specific car, but I think it is close enough for discussion.

Maybe. But you can do the same thing with taxes on gas and not induce a famine in the process.

How do you know?

Yes, that is exactly what I am saying. And there is ample evidence for this, despite HNs general refusal/inability to process this.

"Things cost more" -> "Employees demand more money" -> "Businesses have to pay them more money." -> "Businesses raise prices" -> "Things cost more" -> repeat.

The only way (besides war) that this cycle is broken is with a deep hitting recession where people are just happy they have jobs forget the raises.

Because the US, EU, and Japan all have significant amounts of debt, the kind of interest rate hikes necessary to address the inflation would cripple their ability to borrow and service debt at the levels necessary to support their current level of deficit spending. So that will either lead to austerity, or pressure on the banks to keep interest rates lower than needed out of sheer necessity. Doing that would keep the governments solvent, but would allow inflation to run wild. I don't think the war is going to end anytime soon, so the odds of commodities going back to normal seems unlikely. Cynically, given the choice between default and having us plebeians lose value due to inflation and recession, our leaders will pick the latter. They won't choose to destroy their own government.

To be clear, I don't think this is an economic apocalypse. I just foresee the most significant downturn of my lifetime on the horizon because we seem to be in a perfect storm of problems with solutions that are mutually exclusive.