Good timing, and too small to hurt anything

President Biden’s release of 50 million barrels from the Strategic Petroleum Reserve is perfectly timed. Both to take advantage of the seasonally declining demand for oil, and to provide some much-needed “CYA” ahead of the holiday season – in which everyone’s uncle will complain that gasoline (average $3.40/gal nationwide) didn’t cost that much when Trump was president (and not since 2014).

A senior executive admitteddo not call with reporters this morning that the SPR move is “not an emergency release.” Indeed, there are no domestic gas shortages and oil prices have already fallen 10% in the past week (to $75/barrel this morning), as demand moves into what economist Ed Yardeni calls “typical seasonal decline.” The window to ship goods to the US in time for Christmas closed in mid-October. The number of cargo ships waiting for Los Angeles has fallen to 71 from a high of 86, while the global container index fell 20% last week. As the logistical pressure increases, so will the demand for bunker fuel and diesel. Meanwhile, the International Energy Agency says oil production will increase soon as drillers have already sprung into action in response to higher prices. Add to that the economically stifling effect of new Covid-19 lockdowns in Europe, and oil demand is expected to weaken just in time for Biden to take credit for price falls.

And if prices rise? The government can just keep blaming Big Oil and say at least they tried something.

The best thing about Biden’s move is that it doesn’t really hurt anyone. Because it will be virtually undetectable. Distributed “in the coming months,” these 50 million barrels — 18 million of which are the acceleration of previously allowed sales — will disappear in the global oil market like spittle in the Mississippi. According to analyst Michael Haigh of Societe Generale, “the resulting effect on our model is difficult to observe,” driving prices down “at best” $1/barrel.

By comparison, the world consumes 95 million barrels of petroleum per day. That’s nearly 35 billion barrels a year. America’s commercially held oil reserves are 433 million barrels, the tightest since pre-pandemic (after a pandemic peak of 540 million). The SPR now contains 606 million barrels.

Put another way, Biden’s SPR release would cover about half of the country’s winter time demand for heating oil.

More supply helps, in the margins. Much of the world is in the midst of an energy crisis, with Europe and Asia panicking over access to enough coal and natural gas for power plants amid record electricity prices. La Nina weather patterns threaten a frigid winter; meanwhile, Russia’s 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 keep warm.

While Biden’s move doesn’t really hurt anyone, there are plenty of people who will find it annoying. First of all, OPEC. Biden twice pleaded with OPEC in recent months to add more oil to the market — which they have already done, cutting back 400,000 barrels per day, per month, which the group had previously reduced in light of the destruction of oil. the question by Covid. OPEC rejected his requests.

Why acquiesce in a man who has shown nothing but contempt for the industry? On Biden’s first day in office, he shelved the Keystone XL pipeline. He has blocked oil lease sales on federal land and pushed for stricter regulations. Last week, he ordered the Federal Trade Commission to investigate Big Oil “whether illegal behavior is costing families at the pump.” Since Biden took office, US oil producers have held back. Domestic oil production, at 11 million BBL per day, has fallen from a pre-pandemic peak of 12.8 million.

America’s frackers are rightly angry that Biden would rather beg more barrels from the Saudis than encourage more Texas fracker activity. To them, $75 oil seems reasonable. If that’s not the right price, who’s to say what it is? Biden? Doesn’t he want us to trade in gas guzzlers for electric cars?

Oil and gas production, like everything else, is subject to inflationary forces. The tsunami of dollars released by the Federal Reserve is pushing up the price of steel and sand and the labor needed to produce every barrel of oil. Why bother starting up the rigs and fracking crews to drill more wells when the president will simply try to undercut you once prices reach healthy, profitable levels?

The government admits that oil supplies are sufficient and that there is no emergency. So this move is essentially Biden’s statement of distrust in the world’s largest and deepest commodities market. It’s “I’m a car guy.” Biden shakes his fist to the air and declares to anyone who will listen that he knows better than the market what the price of gasoline should be.