Strategic Political Oil Reserve Biden taps the U.S. emergency supply but prices still rise.
Crude prices rose Tuesday after the Biden Administration announced that the U.S. and other countries would tap their petroleum reserves. Sorry, Mr. President. Markets know that this political gesture won’t fix the supply shortage and could make it worse.
The Energy Department next month will begin releasing 50 million barrels from the U.S. strategic petroleum reserve (SPR), the first major release since the Libyan conflict in 2011. Congress already requires that some 18 million barrels are to be sold to raise revenue, and the other 32 million will be returned to the reserve when prices drop. China, India, Japan, South Korea and the U.K. will also make modest drawdowns.
So why did crude prices tick up? One reason is the release was less than markets expected. For weeks the Administration has been hinting at a coordinated release, so traders overbaked it into prices. Oil stocks also rose smartly— Continental Resources by 8.3%.
Some also expect the Organization of the Petroleum Exporting Countries and Russia to respond in kind at their next meeting in December by reducing supply. OPEC+ has been steadily raising supply by about 400,000 barrels per day each month, though the Administration for months has been lambasting the cartel for not doing more.
It’s true that the Saudis are content with crude averaging the current price of about $80 per barrel, which is about break-even for the Saudi budget. The Kingdom also worries that Iranian supply could increase if the Biden Administration renegotiates a nuclear agreement and lifts sanctions.
For a decade the U.S. was the world’s swing oil producer. But U.S. drillers have retreated amid a regulatory assault from Washington, pressure from progressive investors, and challenges obtaining capital. Some say they are also struggling to find workers. Output is set to hit a record in the Permian Basin, where the break-even costs are low and new production doesn’t require long-term investment.
But U.S. production is still about 1.7 million barrels per day below its pre-pandemic peak and has been declining in other oil fields such as the Bakken Shale, where a shortage of pipeline capacity has raised costs. The Democrats’ multi-trillion-dollar spending bill is chock-full of fees that would make U.S. producers less globally competitive.
Meantime, the Biden Administration last week asked the Fifth Circuit Court of Appeals to reverse a lower judge’s injunction on its ban on oil and gas leases on federal land. All of these policies discourage investment in future production, which means supply shortages and high gas prices may not be as temporary as the Administration claims.
Mr. Biden’s SPR withdrawal is intended to give the appearance of doing something about prices while actually doing nothing.
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