Is President Biden trying to manipulate oil prices even as White House officials accuse OPEC and its allies of doing just that? The release comes three weeks before the mid-term elections, and as the WSJ writes, is this a “sign of desperation” by the Biden team?
Crude price climbed after OPEC+ this month announced a two million barrels a day cut in production. This is really closer to one million barrels a day since many countries aren’t meeting their quotas now. But as day follows night, U.S. gas prices have increased, and the political timing couldn’t be worse for Democrats.
The Administration says its planned drawdown will add about 500,000 barrels a day to global supply in December. But as the WSJ points out, that’s misleading.
About one million barrels a day on average have been released since this spring. The drawdowns were scheduled to end next month, so the new releases will merely prevent supply from contracting more than it otherwise would.
The main problem is that oil demand has outstripped supply amid the post-pandemic economic recovery owing to a lack of investment, especially in the U.S., which had been the world’s swing producer. U.S. production has been flat since May. Now the swing producers are Saudi Arabia and the United Arab Emirates. OPEC countries and their allies, which account for 45% of global oil production, accounted for 85% of new supply in September.
Here We Are Again
Most likely, the releases have helped reduce prices at the margin. Still, the risk that crude prices would rise was always imminent, and guess what?
The Administration said Wednesday it may continue releases as long as “conditions”—i.e., political conditions—require, but this is unsustainable. The SPR has fallen by about 210 million barrels since last fall. (See the chart nearby.) The Administration says the 400 million or so barrels that remain are “more than ready to respond to energy security needs today.”
That’s also far from clear, argues the WSJ, with the Biden administration fast depleting the medium-sour grade rude in the reserve. This grade is the most useful to U.S. refineries.
Much of what remains is a light-sweet crude produced from shale, much of which gets exported. Future releases could compete with U.S. shale in the tight global refining market and even discourage investment in shale production.
A true national emergency could also fast deplete the reserve. That’s why previous Presidents performed only three emergency releases: Operation Desert Storm in 1991 (17.3 million barrels), Hurricane Katrina in 2005 (20.8 million), and the Libya oil disruptions in 2011 (30.6 million). Though prices exceeded $90 a barrel from 2011 to 2014, Barack Obama didn’t resort to emergency drawdowns to reduce gas prices.
How to keep Oil Prices Down
What brought down oil prices and kept them low last decade was the shale fracking boom. U.S. production increased by seven million barrels a day between 2011 and 2019 but plunged early in the pandemic. The Trump Administration floated buying oil for the SPR to prevent producers from shutting in wells, which can do long-term damage to production.
Mr. Biden has already prophesied the possibility of Armageddon. The editorial staff at the WSJ has a better idea. Why doesn’t Mr. Biden deflate oil prices: by giving a simple speech declaring an end to his political war on fossil fuels?
Instead, (Biden) resorts to gimmicks like the SPR releases and cozies up to dictators. Hours after OPEC announced its production cut, news leaked that the White House plans to ease sanctions on Venezuela to liberate its oil production.
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