President Joe Biden is locked in on a collision course with the global energy sector, mainly America’s oil and gas behemoths and the Organization of the Petroleum Exporting Countries (OPEC). The president may not have realized, but he has fired an opening salvo in his war on fossil fuels, leading to a showdown with Big Oil and the cartel. The collateral damage in this battle will be, of course, the consumer, who has been decimated by skyrocketing price inflation this year. The economics of crude has been widely discussed, but what about the political fallout from the latest announcement?
Biden Off More Than He Can Chew?
The White House confirmed that it would release 50 million barrels from the nation’s half-century-old Strategic Petroleum Reserve (SPR). The decision sparked laughter in the financial markets since it already included 18 million barrels that were authorized for auction and will be given to India and China. Market analysts also pointed out that the U.S. consumes between 18 and 20 million barrels of oil per day – a fact that Energy Secretary Jennifer Granholm was unaware of – so the move will only power the nation for about three days. Plus, the administration conceded that the measure would not achieve much to ease prices substantially, calling it a “bridge” to lower gasoline prices.
Overall, many parties are doubtful that this will achieve much in the long run. In fact, it might lead to more geopolitical chaos than savings at the pump or on household heating bills. While the media championed a U.S.-China diplomatic victory, Washington could be at odds with Saudi Arabia and other OPEC nations. This may not have mattered if the U.S. sustained its energy independence, but now that President Biden has undermined this accomplishment by canceling pipelines and discouraging investment and production, the Oval Office may need to tread carefully moving forward.
Next month, OPEC and its allies, OPEC+, will be holding a ministerial meeting. Before the president’s announcement, it was anticipated to be a mundane meeting that would only reaffirm their commitment to pumping out approximately 400,000 barrels per day. However, with the SPR release in the spotlight, there is widespread speculation that these oil-rich countries could choose to cut output, effectively offsetting the expected gains of injecting global energy markets with additional supply and canceling out any potential savings from the tactic.
Ipek Ozkardeskaya, a senior analyst at Swissquote, stated in a research note to clients:
“Obviously, such news doesn’t necessarily scare OPEC, but it probably frustrates them. The expectation is that they will hit back at their meeting next week, and their decision will have an impact longer than a couple of days or weeks. This is probably why we are seeing the oil bulls coming back to the market, and yes, there is a chance now that we see the $80 offers cleared and a push above that level into next week’s OPEC meeting. The only thing that Joe could do at this point is to pray for OPEC to not hit back too strong, because if they decided to cut supply for a couple of weeks, Joe’s oil reserves would be very quickly down.”
And, once again, OPEC would return to the driver’s seat of the international oil markets. Indeed, OPEC+ can endure the multilateral strategy to unleash global strategic reserves because they understand this is a “swap” and governments will need to replenish these reserves. Suffice it to say, OPEC will be paid to replace the oil dumped on the market, make the entity, not the consumer, the primary beneficiary.
The politics and the economics of the SPR decision do not bode well for the Biden administration. But what about the consumer? Will motorists start seeing lower prices at gasoline stations?
Brace Yourselves, Savings Are Coming?
But one of two things are likely to unfold, experts say. The first is that the supply injection will shave a few pennies off of a gallon of gasoline. The second is that nothing will happen at all because the stockpile withdrawal will be in crude barrels, meaning that refineries, many of which have already acquired their oil stocks for December, will need to ramp up gasoline output.
In the end, strategists are still penciling in higher oil and gasoline prices in 2022, alluding to structural problems and strengthening global demand. Many believe a barrel of oil will top $100 by the summer, and others forecast that a gallon of gasoline could reach $6 by the next busy driving season. Did President Biden create this mess? Of course not. Is he pouring kerosene on the inflationary fire? Most definitely – but it is the American people who face the consequences of asinine policymaking.
~ Read more from Andrew Moran.