As was leaked earlier today, President Biden will address the nation tomorrow to explain his next cunning plan to lower gas prices for the average American (except those in California) since OPEC+ snubbed his delay-til-after-the-midterms begging-bowl and decided to cut production last week.
His cunning new plan, we hear you ask?
Well it’s simple – more of the same: blame big oil (gouging and profiteering), blame little oil (greedy local gas station owners), blame the Saudis (who are now Putin puppets)… and drain more of the Strategic Petroleum Reserve.
The Wall Street Journal reports, citing official sources, that central to the president’s address will be a decision for the Energy Department to go ahead and sell the last roughly 15 million of 180 million barrels from the U.S. Strategic Petroleum Reserve he had authorized for sale back in March.
Biden also plans to call on the Energy Department to be prepared for more sales from what’s left of about 400 million barrels in the reserve if Russia or others disrupt world markets, according to the White House.
The SPR is already at its lowest level since 1984…
…and as the chart shows only 130mm barrels above its lows at inception of around 270mm barrels.
However, as we have noted too many times to remember, the problem is not a lack of crude oil but a lack of refining capacity…
Brian Milne, product manager, editor, and analyst at DTN, told MarketWatch:
“U.S. policy pushing away from oil consumption has led to refinery transitions to renewables, or outright closures. This trend accelerated during the COVID-19 pandemic,” and then accelerated further upon Biden’s inauguration.
Gasoline prices at the pump are still up $1.66 from when the Biden administration moved into The White House (but are well off the highs from June)…
And as far as the belief that the previous SPR drainage lowered the gas price, Milne highlighted that the bigger drivers lowering US gasoline prices, however, were “sharply lower demand from China amid its zero-COVID policy that has stymied economic activity, and reduced transportation demand as millions of citizens were either locked down or had other restrictions reduce their mobility.”
Since President Biden has been in The White House, 230mm barrels of crude have been drained from the SPR and gasoline prices for the average American are up $1.66…
That said, imagine where oil prices (and gas prices) would be without the SPR drain! (and maybe, just maybe, that is the point: if market forces allowed to work – as painful in the short-term as they may be – as every energy/commodity trader knows, high prices beget low prices in the end).
Finally, we couldn’t help but consider the case for impeaching the president over such reckless acts.
Consider that first, we learned he was pressing Saudis to help him with elections (Trump was impeached for less ‘quid pro quo’), and now he is draining a critical national asset (enabling a clear national security threat) just to boost approval (for his party’s personal gains), instead of encouraging US production and enabling increased refining.
Bear in mind that the level of the SPR is now at a record low around just 22 days of supply (and will go even further down should the latest plan come into place)…
Cuts from OPEC and Russia, combined with a higher demand from China as its economy emerges from pandemic lockdowns, would lead to new shortfalls in oil supply, according to Neil Beveridge, senior energy analyst at Sanford C. Bernstein. That could push crude prices back to $120 a barrel by the end of 2023, his team forecast.
“That’s when you really need the SPR,” Mr. Beveridge said in an interview.
“And if the SPR has been partially exhausted, it can lead to a steeper escalation in prices.”
But it gets better (or worse), since Bloomberg reports that the administration plans to initiate purchases when West Texas Intermediate crude prices are at or below $67 to $72 per barrel, according to a senior administration official.
Just who do they think will sell them oil at that price?
And while we are doing thought experiments, what’s to stop OPEC+ from cutting output by another 1MM per day for a year and forcing Biden to drain the entire SPR? Inevitably leading to a massive new demand to refill the ’emergency’ reserve, sending prices soaring?
Perhaps that why oil is starting to catch a bid this evening?
We give DTN’s Brian Milne the last word on the actual policy:
“Transferring SPR crude oil from emergency reserves to commercial tanks now would likely not help in lowering retail gasoline prices, or do so only marginally,” adding that “such a policy does not make sense.”
Or put another way…
