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Good timing, and too small to hurt anything

 


The release by President Bidens of 50 million barrels of the strategic oil reserve is perfectly programmed. Both to take advantage of the seasonal decline in oil demand, as well as to provide much needed CYA before the holiday season when everyone’s uncle will complain that gasoline (average $ 3.40 / gal nationally) didn’t cost that much when Trump was president (and it hasn’t since 2014).

A senior administration official admitted odon’t call with reporters this morning that the SPR movement is not an emergency release. Indeed, there is no shortage of gasoline in the domestic market and oil prices have already fallen by 10% last week (to $ 75 / barrel this morning), as demand is moving towards what economist Ed Yardeni calls it a typical seasonal decline. The window to ship goods to the United States in time for Christmas closed in mid-October. The number of cargo ships waiting off Los Angeles fell to 71 from a peak of 86, while the global container index fell 20% last week. As the logistical pressure increases, the demand for bunker fuel and diesel will also increase. Meanwhile, the International Energy Agency said oil production will soon increase as drillers have already moved in response to the price hike. Add to that the economically stifling effect of new Covid-19 lockdowns in Europe, and demand for oil is expected to slow just in time for Biden to take credit for lower prices.

What if the prices go up? The administration can continue to blame Big Oil and at least say it tried something.

The best thing about Bidens’ movement is that it doesn’t really hurt anyone. Because it will be virtually undetectable. Distributed over the next few months, these 50 million barrels of which 18 million will be the acceleration of previously authorized sales will disappear on the world oil market as spat in the Mississippi. According to Societe Generale analyst Michael Haigh, the resulting effect on our model is even hard to notice, reducing prices by at best $ 1 / bbl.

For context, the world consumes 95 million barrels of oil per day. That’s almost 35 billion barrels per year. The Americas’ commercial oil stocks are 433 million barrels, the lowest since before the pandemic (down from a pandemic peak of 540 million). The SPR, meanwhile, contains 606 million barrels.

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In other words, the release of Bidens SPR would cover around half of the countries in winter. fuel request.

More supply helps, at the margin. Much of the world is in the grip of an energy crisis, Europe and Asia are panicking over access to sufficient supplies of coal and natural gas for power plants amid record electricity prices . La Nina’s weather conditions threaten a freezing winter; Meanwhile, Russian Gazprom has been slow to send gas to Europe, which faces the very real prospect of people freezing to death because they can’t afford to stay warm.

While Bidens’ move doesn’t really hurt anyone, there are a lot of people who will find it boring. First of all, OPEC. Biden has twice begged OPEC in recent months to add more oil to the market, which they have already done, bringing back 400,000 barrels per day, per month, which the group had previously cut in the face of destruction of Covid’s request. OPEC rejected his demands.

Why nod to a guy who has shown nothing but contempt for the industry? On the first day of taking office, Bidens destroyed the Keystone XL pipeline. He blocked sales of oil concessions on federal lands and lobbied for stricter regulations. Last week, he ordered the Federal Trade Commission to investigate Big Oil to find out whether illegal driving is costing families at the pump. Ever since Biden came to power, America’s oil producers have kept their horns. National oil production, at 11 million barrels per day, is down from a pre-pandemic peak of 12.8 million.

American frackers are rightly annoyed that Biden would rather beg more barrels from the Saudis than encourage more activity from the Texas frackers. To them, $ 75 worth of oil seems reasonable. If that’s not the right price, then who can tell what is? Biden? Doesn’t he want us to trade gas guzzlers for electric vehicles?

Oil and gas production is subject to inflationary forces like everything else. The tsunami of dollars released by the Federal Reserve pushes up the price of steel, sand and labor needed to produce every barrel of oil. Why bother turning on rigs and fracking crews to drill more wells if the president is just going to try to undermine you once prices hit a healthy, profitable level?

The administration admits that the oil supplies are adequate and that there is no emergency supply. So this decision is therefore effectively a declaration of censorship by Bidens in the world’s largest and deepest commodities market. It’s a car guy, Biden, clenching his fist to the sky and telling anyone who wants to hear it that he knows better than the market what the price of gasoline should be.

Sources

1/ https://Google.com/

2/ https://www.forbes.com/sites/christopherhelman/2021/11/23/the-upside-of-bidens-oil-move-good-timing-and-too-small-to-hurt-anything/

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