With oil prices soaring and American companies slow-walking production increases, some energy analysts have begun suggesting that politically noxious government incentives — like subsidies for oil companies — could be needed to bring supply back in line with demand, Matt writes.

Why it matters: The Russian energy shock, amid broad inflation, leaves political leaders — at least those hoping to stay in power in democracies — with a series of ugly to nightmarish policy options.

Driving the news: U.S. crude prices continued to surge Tuesday — to nearly $120 a barrel in early trading before easing back — after the European Union moved a step closer to banning imports of Russian crude.

The big picture: Russia is the world's second-largest exporter of crude oil and the largest exporter of natural gas. Sanctions levied in response to its invasion of Ukraine upended energy markets, supercharged prices and triggered a rush to secure supplies.

• In theory: The U.S. — the world's largest crude oil producer — has the reserves, wealth, and technical know-how to boost production, offsetting some of the Russia shock's impact on inflation.
• In practice: Unlike other energy superpowers — Saudi Arabia and Russia, for instance — the U.S. relies on a system of laws and market incentives to coax companies to pump more. U.S. leaders can't just pick up the phone and order a couple of million extra barrels of production per day (more below on the production imbalance).

What's next: Some analysts are starting to game out what could be done to boost production and help bring down energy prices in the coming years.

• "To do so quickly in an environment in which oil and gas investors are actively discouraging production growth would require a shift to a New Deal-like approach to energy policy," wrote analysts with JPMorgan in a recent report.
• "With an unprecedented investment in U.S. exploration and production along with a significant relaxation in regulations the U.S. Federal Government could potentially encourage U.S. producers to grow crude oil output at a rate of more than 2 million barrels per day, per year starting in 2024," they wrote.

Our thought bubble: Pledging to spend billions of taxpayer money — JPMorgan ballparks the cost of such a New Deal-style response at $400 billion — to subsidize already massively profitable energy companies would be political suicide.

• It would also fly in the face of efforts to decarbonize the economy.
• Far likelier options in the U.S. include subsidies to consumers to allow them to keep buying — or penalties like windfall taxes on oil companies for keeping prices high.

The bottom line: With the green energy transition still off in the hazy future and a growing list of giant oil producers like Russia, Iran and Venezuela whose supplies are off-limits, politicians throughout the West need credible plans to address energy costs over the next few years — and fast — if they want to stay in power.

Though oil prices are up more than 70% over the last year, American producers have been slow to respond, Matt writes.

• Weekly domestic production is up roughly 7% over the same span, and it remains 8% below where it ended in 2019.

The big picture: Analysts cite a few key reasons that drills are idle.

• Inflation: Costs for drilling materials and labor are all up sharply and in some cases difficult to find.
• Uncertainty: It wasn't that long ago — during the worst of the COVID-related lockdowns — that oil prices went negative. Now they're at some of the highest levels on record. Such wild swings equal massive uncertainty for executives contemplating billions in spending to boost production in coming years. They're largely taking a pass.
• Giant profits: Shareholders have pushed CEOs to opt for near-term profitability over risky bets on future production. Right now high prices are generating massive profits.
• Climate: With climate issues making a lower-carbon future likely, oil companies are seeing little reason to make major long-term investments.

🛢 How Russian oil producers evade sanctions. (WSJ)

⚖️ Supreme Court blocks Texas' controversial social media law. (Axios)

📈 Yellen says she was wrong about inflation's path. (Axios)

Remember a couple of weeks ago when everyone was screaming that the stock market was, indeed, in a bear market. Well, never mind, Matt writes.

Driving the news: The S&P 500 pulled back from the proverbial ledge in May.

• After being down as much as 5.6% for the month on a closing basis — and even briefly falling intraday by more than 20% from its recent high, the threshold that would confirm a bear market — the S&P staged a turnaround.
• It ended the month with a laughable gain of 0.01%.
• The market is down 13.3% in 2022.

Our thought bubble: The sudden lightening of the mood on Wall Street — the S&P is up 6% since hitting its recent low on May 19 — is tied to fresh hopes that the Fed might not have to hike rates as high as everybody previously thought, especially after its preferred gauge of inflation showed the rate of price increases slowed in April.

The bottom line: We'll see.

In the first quarter, companies were less apt to mention labor shortages on earnings calls, according to Sentieo, which tracks English-language transcripts from more than 9,000 global companies, Emily writes.

Why it matters: This could point to a slight cooling in the labor market — an early sign that companies are a little less frantic about the dearth of available employees to hire, even as the unemployment rate is quite low.

• Labor shortage discussions peaked last year, said Nick Mazing, a researcher at Sentieo, an AlphaSense company. "More recently, we started to see layoffs and other belt-tightening announcements, indicating a turn for the worse."
• Layoffs at startups are rising, according to data tracked at layoffs.fyi.
• Signs are coming from large employers, too: Walmart and Amazon both said recently that they'd over-hired.

Meanwhile, Americans' outlook on the job market is still very good — but not as awesomely good as a month ago, according to the Conference Board's monthly survey of consumer sentiment in May.

• 51.8% of consumers said jobs were “plentiful,” down from 54.8% in April.
• 12.5% of consumers said jobs are “hard to get,” up from 10.1%.

The bottom line: Back in March, Fed chair Jerome Powell said the job market was tight to an unhealthy level; these signs show that the labor market is eating more greens.

• Up next: The May jobs report is out on Friday.