The late release of 50 million barrels from the Strategic Petroleum Reserve by Joe Biden is perfectly timed. To take advantage of seasonally declining oil demand, as well as to give “C.Y.A.,” This is the time of year when everyone’s uncle starts griping about gasoline (averaging $3.40/gal nationwide) not costing this much when Trump was president (and hasn’t since 2014).
This afternoon, the senior administration official acknowledged at a press conference that the S.P.R. release is “not an emergency situation.” Domestic gasoline shortages do not exist, and oil prices have already fallen 10% in the past week (to $75/bbl this morning), as demand shifts into what economist Ed Yardeni refers to as a “typical seasonal dropoff.”
The window to deliver goods in time for Christmas closed in mid-October. The number of cargo ships off Los Angeles has decreased to 71 from a high of 86, while the worldwide container index plummeted 20% last week. As shipping demands rise, so will the need for bunker fuel and diesel.
Meanwhile, the International Energy Agency expects oil production to increase as drillers have already begun to respond to higher prices. To begin with, the prospect of renewed Covid-19 lockdowns in Europe has had a dampening effect on consumption. Add to that the economically strangling impact of new Covid-19 locks throughout Europe, and consumption will just be enough for Biden to take credit for price drops.
What happens if the price of energy goes up? The administration may just repeat what it’s been saying about Big Oil and claim it at least tried something.
The nicest thing about Biden’s appointment is that no one got harmed. Because it will go unnoticed. The 50 million barrels that the administration has “doled out over the next several months,” as well as 18 million of which will be accelerated sales from previously authorized exports, will disappear into the global oil market like spit into the Mississippi. According to Société Générale analyst Michael Haigh, “The resulting impact on our model is difficult to notice,” with prices declining by “at best” $1/bbl.
For context, the earth consumes 95 million barrels of oil each day. That’s about 35 billion barrels per year. America’s commercially held oil reserves are 433 million barrels, the smallest since before the pandemic (down from a peak of 540 million). The S.P.R., on the other hand, has 606 million barrels.
Put another way; if Biden releases his S.P.R. numbers, they will cover approximately half of the heating oil demand during the winter.
In the long run, more supply does help. With demand for energy increasing due to an ageing population and a growing global economy, the world is amidst an energy crisis. Europe and Asia are concerned about having enough coal and natural gas for power plants amid record electricity costs. The coming winter in North America might be freezing. Meanwhile, Gazprom has been sluggish to deliver gas to Europe, which faces the real prospect of people freezing to death because they can’t afford to keep warm.
Although Biden’s declaration does not harm anybody, it will annoy a lot of people. OPEC is, without a doubt, the most significant. In recent months, Biden has urged OPEC to increase oil production to keep the market from being destroyed by Covid demand reduction. The organization ignored his pleas.
How can you trust a guy who has shown no respect for the business? The Keystone XL pipeline was killed on Biden’s first day in office. He has opposed oil leasing on federal property and has pushed for more stringent standards. Last week, he instructed the F.T.C. to investigate Big Oil “to determine if unlawful actions are impacting families at the pump.”
During Biden’s term, oil producers in the United States have kept their heads down. Domestic oil production has decreased from a pre-pandemic high of 11 million barrels per day to current levels of 11 million.
Biden’s remarks have enraged America’s frackers, who are furious that he would prefer to request more barrels from the Saudis than urge more production from Texas frackers. To them, $75 oil appears to be a fair price. Who’s to say what’s reasonable, if not that amount? Biden? Isn’t he encouraging us to swap our gas-guzzlers for electric vehicles?”
Oil and natural gas generation is affected by inflationary forces, just like everything else. The flood of cash from the Federal Reserve raises the cost of steel, sand, and labour required to create every barrel of oil. Why spend all that money on rigs and fracking crews to drill more wells if the president is just going to try to undercut you once prices reach a healthy, profitable level?
The administration acknowledges that oil supplies are adequate and there is no supply emergency. Biden’s move to dump the gold standard is an unofficial repudiation of the world’s largest and deepest commodity market, thus far.