The price of Oil fell more than 4% on Wednesday as the G7 nations looked at a price cap on Russian oil and as gasoline inventories in the United States built up more than analysts expected. The idea of the price cap is to prohibit shipping, insurance and re-insurance companies from handling cargos of Russian crude around the globe, unless it is sold for no more than the price set by the G7 and its allies. This is an attempt to keep Russian oil in the market to avoid a worldwide shortage, while reducing the profitability for the Russians. It’s a frail strategy. I foresee difficulties agreeing on a dollar amount. Every player involved will probably have a different opinion on what that price should be. Even if they come to an agreement, probably somewhere in the $60/barrel range, production cost for Russian seaborn oil is only about $20 a barrel and on top of that, there is always a black market for illegal commodities. This cap would also have to be re-negotiated several times throughout the year since oil prices have been all over the place.

U.S. gasoline stock rose by 3.1 million barrels, according to the Energy Information Administration. Analysts had estimated a build of 383,000 barrels. That increase in gasoline supplies suggests that maybe we're seeing demand weakening. The news added to demand concerns relating to top crude oil importer China, which has been grappling with a surge in COVID-19 cases, with Shanghai tightening rules late on Tuesday.

Lower oil prices would certainly help to avoid a global recession, but this trend lower could be short lived. OPEC is already producing less than the target amount and will continue to cut if they see a global slowdown. There is unfortunately a great chance that the price of oil will be heading back towards $100/barrel and that we will see $2 again at the pumps.

The easy way out seems obvious, ramping up production in North America. While many are quick to direct blame towards the White House and Ottawa, we will look at the real reasons next week.