No More Gas | The Worst Energy Crisis In 40 Years

The U.S. is facing a diesel shortage. The price of diesel has been soaring for months. In 25 days from now, there will be no more diesel, up 27 and 28 percent. It's a very, very high bill.

"What's up guys, it's Graham here." So, in 1973, the United States faced an oil crisis where prices quadrupled in a year. Shortages ensued, and rationing became so common that people began to hold on to whatever they could get their hands on.

Well, today it appears that history is beginning to repeat itself. Now that the U.S. is potentially facing the worst oil crisis in history, with fears that we could soon be running out. After all, gas prices are already near their all-time highs. Production is about to be cut even further by 2 million barrels a day, and some fuels are on such short supply that the U.S. has just 25 more days left.

So, given all of this talk about the worst energy crisis in decades, draining reserves, and record high prices for anyone invested in oil, let's talk about exactly what's going on, why oil production will continue to decrease, and how this is about to have a major impact throughout our entire economy.

On this episode of Millennials Should Just Buy a Tesla. Although, before we get started, while we're on the topic of gas, as most of you know, I do my best to pump out three videos every single week. If you appreciate this being a one-stop shop where you could fill up on knowledge, it would mean a lot to me if you topped off that like button or subscribed if you haven't done that already. Plus, if you could do that in the next five seconds, I promise that you'll be able to ride out the next recession without running on empty.

All right, so here's where all of this starts. On the most basic level, the United States uses about 20 million barrels of oil every single day, which makes us the number one consumer of oil in the world by far. But there's a bit of a catch. Since we only produce 18.6 million barrels of oil a day, we've become reliant on other countries to fill that deficit. And that is where things get interesting.

See, on a global scale, not every country uses the exact same amount of oil on a regular basis. Some months could be higher than usual, and other months could be lower than usual. And since oil production can't quickly be turned off and on with a moment's notice, countries are often left with a surplus or a deficit depending on how much they actually use.

Because of that, when they have too much, they'll sell the excess to other countries who have too little, and when they have too little, they'll buy it back to maintain a consistent out day after day. But what happens when everyone wants oil at the exact same time and there's not enough to go around?

Well, in this case, even though the United States produces almost as much oil as we use, it's the wrong kind of oil. We exported and sold nearly half of our production to 176 countries, and then we turned around and bought the rest that we need from Canada, Mexico, Russia, Saudi Arabia, and Colombia, of which the United States is beginning to catch up. That might have led to some problems when it comes to this.

You first have to understand OPEC, which is the Organization of the Petroleum Exporting Countries. This is a group of 13 major oil-exporting nations who have teamed up to ensure that oil prices are stabilized throughout the international market without any major fluctuations. They currently control more than 80 percent of the world's crude oil supply, or I guess more simply put, instead of working together and competing with one another, they decided they would make more money working together, and so OPEC was created.

Why does this matter? Well, together, OPEC produces more than 40 percent of the world's entire oil supply, which is way more combined than we make as the United States. It would be a shame if they were to ever retaliate against us, you know, right?

Just take 2016 as an example. Oil prices plummeted because the U.S. began increasing its output with greater efficiency, lowering production costs and causing more supply to hit the market. That upset the countries who didn't like to see lower oil prices, and even though tensions were temporarily resolved, there continued to be the ongoing threat that the U.S. could dominate the oil market.

So, in 2020, when demand slowed down, U.S. oil was building up from a lack of demand, and prices were falling below our production costs. Russia clapped back by refusing to cut production to stabilize prices, and then they did the unthinkable: they pumped even more oil in an attempt to destabilize the market and gain market share.

Now, even though an agreement was later reached and oil production was eventually cut to prevent prices from falling too far, the tension never completely went away. And today, in the middle of a global oil shortage, OPEC strikes back at a time of record high inflation by cutting oil production again.

Why is it a big deal? Well, imagine it's like cutting off the water supply during a heat wave, causing prices to increase even further during a time of record high inflation. Starting in November, oil production will be decreased by 2 million barrels a day.

On the one hand, the United States believes that this is done in support of Russia, who relies on high gas and oil costs to sustain their economy. But on the other hand, Saudi Arabia believes that we're going into a global recession; demand is going to fall, and they want to get ahead of it before it's too late to end oil prices crash.

After all, oil production is like playing a game of 4D chess: produce too much, and the price falls; produce too little, and someone else will take your place. With the global economy expected to slow down, it's imperative to stay one step ahead of everyone else.

So, if they're predicting a recession and demand should, in theory, begin going down, why is the United States suffering from record high gas prices, and why is this being called the worst energy crisis in decades?

Well, in terms of the United States, a lot of this began in 2020 as the country went into a lockdown. Refineries began to scale back on production, since, after all, people weren't traveling, they weren't driving, and they weren't going on cruises, and all of that demand completely evaporated overnight.

But as the economy began to recover, production began to increase, although at a much, much slower pace than before. And when you combine that with the deep freeze over Texas, a harsh winter in Europe, and a war that no one saw coming, it's easy to see why the price at the pump that we pay has been increasing.

However, here's where we take a slightly different turn. In 1975, the United States created what's called the Strategic Petroleum Reserve after the Saudi Oil Embargo caused prices to nearly quadruple in a year, leading to rationing at gas stations and panic among consumers who began hoarding gasoline-related products.

So, as a way to prevent that situation from happening again, the Strategic Petroleum Reserve was created to hold more than 700 million barrels of oil as a backup in case of an emergency. The goal is that this would act like a cushion during energy disruptions. It would allow the U.S. to raise revenue as needed, and it could be loaned out to other companies for a profit.

Typically, throughout the last few decades, we've held between 600 and 700 million barrels of oil. We've stocked up when times are good and released them strategically in times of hardship. But today, the reserve has fallen to its lowest level since 1984. In fact, we've used 27 percent of our entire reserve in one year, with another two months left to go.

On top of that, it's also said the United States has just 25 days left of diesel supplies, as global tensions cause delays in production. But with winter coming and demand for oil still strong, analysts believe that this could set the stage for a global energy shortage.

So, we need to talk about exactly what's being done, what this means for you, and how this is going to impact almost everybody watching. To start, bringing these prices down is not going to be an easy fix.

That's why they're proposing a three-part plan that begins with what's called the no pack bill. Get it? Like OPEC, but no. Anyway, this bill, if signed into law, would allow the United States the option to sue OPEC and its members for fixing and manipulating the price of oil, similar to how they would work to disassemble monopolies who gained too much control within a specific sector.

However, the downside is that it could be nearly impossible to enforce any decisions against a foreign nation. It's heavily opposed by the U.S.-based oil companies, and if they actually pursue this further, there could be serious consequences from other oil companies who could make the situation a lot worse.

It's also worth noting that OPEC might not have as large of an effect as we think, with an Oxford study finding that OPEC members cheat on their commitments 96 percent of the time. Generally, they do what they were going to do anyway, or more simply put, the group exists because of its political benefit between members, and the price would be the same with or without the group.

Second, they're planning to release more oil from reserves, with another 15 million barrels scheduled to be released in December. As they say, the upcoming oil reserve release is aimed at ensuring there's enough oil on the market to ensure gasoline prices don't spike up. But critics argue that this could be a political move to try to lower oil prices prior to elections.

Well, 15 million barrels in a month barely makes a difference when we consume 20 million barrels a day. Of course, other studies show that tapping the reserve so far was able to lower prices between 17 and 42 cents a gallon. So, I'll leave that one up to you to decide.

And third, the U.S. wants to encourage more production to bring down costs. According to the U.S. Energy Secretary, the U.S. was working to identify at least 3 million barrels per day of new global oil supply, with assurances from high-level oil and gas executives that their companies were set to dramatically increase investments and bring online new rigs.

Now, some could say that U.S. oil suppliers have very little incentive to bring down prices given that their profits have been skyrocketing through the roof. Although, in terms of how this is going to impact you, I recommend sitting down.

In terms of higher energy costs, this is likely to lead to what's known as cost-push inflation. This occurs when energy prices are on the rise, and because manufacturing costs also increase, that extra cost gets passed on to you as the consumer in the form of higher prices.

That, in turn, is likely to lead to higher inflation, which in turn will lead to higher interest rates, which of course will increase the cost of borrowing. It's also reasonable to expect that as energy costs take up a higher portion of disposable income, consumer spending will fall, and that's bad for stocks.

Now, even though oil prices like this are usually temporary—from the oil embargo to the great financial crisis to now— in the short term, demand is fairly consistent. So, most likely consumers just pay it and then they cut back elsewhere.

But long term, higher oil prices may encourage consumers to diversify away from gasoline-powered products, diversify into solar, and drive electric vehicles, which could much further down the line have an effect on demand. After all, auto manufacturers are paying very close attention to fuel efficiency. Ford aims to be fully electric by 2035, and California plans to ban the sale of gas-powered cars around the exact same time.

Although, in terms of what I think about this and how you can make the most of the situation, here are my thoughts. In the big picture, it's probably not looking great for the United States. We've become extremely reliant on foreign oil, and as much as we're investing back into renewables, it's estimated that natural gas will still be the most consumed source of energy through 2050.

Personally, I think renewable energies are the future, and I would love to see a reality where electric cars and solar panels are the norm, but it's going to take time. Financially speaking, there's going to be a price to pay while we go through that transition.

Foreign relations are extremely complicated. Imports are often less expensive than manufacturing here domestically, and realistically, we're not producing enough to be able to withstand any disruptions in price.

However, on the bright side, the majority of Americans are in favor of being carbon neutral, and as technology advances, it's going to become cheaper and cheaper to manufacture. So, financially speaking, in the short term, I wouldn't be surprised if prices remain high, and most likely that would result in higher prices for everything else that's dependent on oil—so pretty much everything.

But long term, I believe this will help push the advancement of renewable energy, and in the next few decades, we could be at a point where foreign oil is of less importance. Until then—and I know I say this all the time, but it's especially true today—do your best to cut back on what you don't need, save as much money as possible, and keep an emergency fund on the side just in case.

As history has shown us time and time again, eventually prices do come back down. So as long as you could get through these next few months, you should be okay.

So with that said, you guys, thank you so much for watching. As always, feel free to add me on Instagram. Thank you so much, and until next time.