President Joe Biden publicly announced today that the U.S. will release 50 million barrels of crude oil (a half a day’s worth of global crude oil consumption) from its Strategic Petroleum Reserve (SPR).
The White House has been signaling its intention to do this for the last several weeks, allowing enough time for the event to be priced into the market.
But yesterday, in reaction to the official announcement, WTI crude oil on the NYMEX settled 2.3% higher at a five-session high of $78.50 per barrel.
All told, the SPR release, coordinated among the U.S., India, China, Japan, South Korea, and the United Kingdom, is a short-term scheme for the White House to give the appearance that it is addressing rising prices.
It is for optics only and it smells of political desperation.
Let us keep in mind that the SPR was created in response to the Arab oil embargo in 1973. The SPR was NOT created to bolster sagging poll numbers.
President Biden’s scheme to address rising gas prices is for optics only and it smells of political desperation.
(Left) Sign shows gas prices at a Shell station on Monday, Nov. 22, 2021, in San Francisco. (Right) The Strategic Petroleum Reserve in Freeport, Texas, U.S. June 9, 2016.
President Ford signed the Energy Policy and Conservation Act (EPCA) in 1975 which authorized the creation of the reserve.
The EPCA declares “…the policy of the United States to provide for the creation of a Strategic Petroleum Reserve… for the purpose of reducing the impact of disruptions in supplies of petroleum products or to carry out obligations of the United States under the international energy program”.
The current supply crunch has nothing to do with that.
In March 2020, prior to COVID-19 mitigation efforts shuttering the global economy, the U.S. was the largest producer of crude oil in the world at over 13 million barrels per day.
Today, the U.S. is producing fewer than 11.5 million barrels per day.
After being badly burned when oil prices collapsed in 2014 and again in 2020, producers are now reluctant to ramp production back up.
If the White House was serious about addressing long-term structural imbalances in the oil market, beyond next November’s congressional elections, then instead of a short-term gimmick like releasing part of its rainy day supply of oil, President Biden would work with domestic producers to increase their production to pre-COVID levels.
Unfortunately, given this administration’s insouciance for all things fossil fuels, encouraging domestic production to solve the issue of rising gasoline price is apparently not on the table.
When it comes to oil prices, the Democrats are nothing if not predictable. They would rather pursue imaginary bogeyman than allow the market economy to work.
Back in March in our daily research note, The Schork Report, we noted that the blame game would be coming to a political theater near you.
As we wrote at the time, apropos of rising gasoline prices, “… when Americans begin to complain this summer about the high cost of gasoline—even though they have an unearned $1,400 of stimulus in their pocket—Washington, in a thinly veiled attempt to hide its culpability, will resort to its old playbook and blame Big Oil for the price hike. So we know the demagoguing is coming; the higher prices rise, the more severe the rhetoric shall be.”
To this point, the scapegoating has arrived.
Early this month, the White House fired its first salvo at Big Oil.
In a statement by President Biden, “[I] have directed my National Economic Council to pursue means to try to further reduce these [energy] costs and have asked the Federal Trade Commission to strike back at any market manipulation or price gouging in this sector.”
This statement was then followed up last week by a mendacious tweet from the White House claiming that because there has been a recent decoupling in the price between unfinished gasoline and gasoline at the pump, this was evidence of market manipulation.
You see, it is not Biden’s policies—cancelling Canadian oil pipelines while approving Russian gas pipelines, putzing around with oil and gas permitting and leasing on federal lands, suspending oil drilling leases in the Artic National Wildlife Refuge to name a few—that are (at least in part) at fault.
Biden took great pains to make that very clear in his remarks today.
‘I also want to briefly address the one myth about inflation gas prices,’ he said in his public announcement of the policy. ‘They are not due to environmental measures. My effort to combat climate change is not raising the price of gas…’
Instead, it is allegedly Dick Dastardly and his merry band of modern-day robber barons, twirling their handlebar moustaches and manipulating prices.
Biden also made this claim himself today.
‘The price of gasoline in the wholesale market has fallen by about 10% over the last few weeks, but the price at the pump hasn’t budged a penny,’ he said with disgust.
‘In other words, gas supply companies are paying less and making a lot more, and they do not seem to be passing that on to consumers at the pump… instead companies are pocketing the difference as profit. That’s unacceptable.’
Notice Biden’s rhetorical sleight of hand talking about unfinished gasoline in last week’s tweet from the White House, while conveniently ignoring inflation in the myriad of components required to turn unfinished gasoline into finished gasoline.
For instance, through the fall butane and ethanol prices have rallied by 36% and 67%, respectively and are hit life-of-contract highs on the NYMEX.
So, here we go again, the Democrats will tilt at their favorite straw man and just like every bogus investigation they have opened over the last 20 years, the Democrats will come up with diddly-squat.
This is what we have come to expect from a White House replete with out of touch staffers.
Back in September, National Economic Council (NEC) Director Brian Deese assured Americans that inflation is not a problem — as long as you give up eating animal protein.
Back in September, National Economic Council (NEC) Director Brian Deese (above) assured Americans that inflation is not a problem — as long as you give up eating animal protein.
According to the NEC Director: “If you take out those three categories (beef, pork, and poultry), we’ve actually seen prices [sic] increases that are more in line with historical norms”.
To put Deese’ obtuse observation into perspective, this Thursday’s Thanksgiving Day meal will be the most expensive in the history of the holiday with costs for everything from the disposable aluminum turkey roasting pan to the coffee and pie going up.
Turkey prices are expected to break the Department of Agriculture’s benchmark price record of a $1.36 per pound.
In October, White House Chief of Staff Ron Klain retweeted a tone-deaf conceit, oozing with contempt for ordinary Americans. Proudly displaying his economic illiteracy, the White House Chief of Staff pooh-poohed inflation and supply chain chaos, as “high-class problems”.
Inflation is growing at the fastest pace since the double-dip recession in 1981, real wages are falling by 2.1%, and real disposable income is falling at a 2.0% rate.
As Thomas Sowell reminds us, inflation takes the same percentage from the poorest person in the country as it does from the richest. It is the ultimate tool to tax and transfer wealth from both the haves and have-nots to a government that expands the money supply.
Contrary to Klain’s ignorant boast, inflation is not high-class, it is grotesque.
Not to be outdone by Messrs. Deese and Klain’s callousness, Energy Secretary Jennifer Granholm delivered the pièce de resistance performance of a self-smitten chattering class. The other week, Bloomberg’s Tom Keene asked the Energy Secretary “… what is the Granholm plan to increase oil production in America”?
This question sparked a guffaw from the Secretary of Energy which was then followed by Granholm telling Tom his question was “hilarious”. Granholm threw some obligatory shade at OPEC+ but never answered the question. With Americans expected to pay 30% more for their natural gas this winter, 54% more for their propane, and 43% more for their heating oil, the Energy Secretary does not have a plan. That is really hilarious.
What makes the SPR ploy by the White House especially scandalous, is that gasoline prices—a national average of $3.40 per gallon according to AAA—while high relative to a year ago are reasonable comparative to the last forty years.
The White House is in panic mode because Americans—who pay some of the cheapest, if not the cheapest non-subsidized price for gasoline in the world—are clutching their pearls because they now have to pony up $3.40 at the pump.
Today, the real price of gasoline (adjusted for inflation) is cheaper today than it was in 1984. Looking back to 1976 (when barrels first started flowing into the SPR), current real gasoline prices are in the 60th percentile.
This is not worthy of a release of barrels from the SPR but, here we are.
The move is bound to backfire.