On Tuesday, November 23, President Biden ordered the release of oil from the nation’s Strategic Petroleum Reserve due to rising gasoline prices that he has afflicted on American drivers through his anti-oil and gas policies. The Biden administration will release 50 million barrels of oil from the Strategic Petroleum Reserve in tandem with Britain, China, India, Japan, and South Korea releasing some of their oil reserves in an effort to reduce rising oil prices on the global market. This seems to be Biden’s last straw after begging and failing to get OPEC to increase supplies more quickly than its current 400,000 barrel per day each month increase. He also had the gall to ask U.S. oil producers to increase their production domestically after taking away tools that they need to produce more. Further, through desperation Biden accused oil companies of illegally raising prices, requesting the Federal Trade Commission to investigate, despite nearly 50 previous investigations showing no anti-competitive behavior nor market manipulation.
But this may backfire on Biden as the global market has already responded to the 100 or so million barrels that will be released from the emergency reserves of the 6 nations, by lowering oil prices since late October. Futures in New York fell below $76 a barrel after losing almost 6 percent in a week. That is because President Joe Biden has been talking for several weeks about the possibility of joint releases from reserves. According to Goldman Sachs Group Inc., such a release would only be a short-term fix to a structural deficit. “In fact, if such a release is confirmed and manages to keep oil prices depressed in the context of low trading activity into year-end, it would create clear upside to our 2022 price forecast.” The bank’s 2022 forecast is slightly lower—$81.30 per barrel—than its forecast for the final quarter of this year at $85 a barrel for Brent.
The Biden administration, however, is believing that West Texas oil prices will fall to ~$60 a barrel by the end of 2022, despite the Department of Energy’s Energy Information Administration’s (EIA) November Short Term Energy Outlook forecasting prices at $82 per barrel for the fourth quarter of 2021. In 2022, EIA expects that growth in production from OPEC+, U.S. tight oil, and other non-OPEC countries will outpace slowing growth in global oil consumption and contribute to Brent prices declining from current levels to an annual average of $72 per barrel—far from Biden’s $60 figure.
But, only yesterday Bank of America warned of $120 oil in 2022, which would result in SPR Exchange participants realizing heavy losses as they are forced to refill the SPR at significantly higher future prices. As part of Biden’s plan, 32 million barrels of oil will be returned to the Strategic Reserve next year and another 18 million barrels will be released as an acceleration of an oil sale Congress had already authorized. For refiners to avoid the risk of refilling the SPR at higher prices, they will be forced to buy 2022+ oil futures contracts or opt out of the exchange entirely, likely resulting in higher oil prices. With the White House having formalized its rumored SPR release, market focus will shift to the reaction of OPEC+ and prospect of the reinstatement of the crude oil export ban that the Biden administration has also tossed around, after receiving a letter from eleven Senate Democrats to do just that.
However, reinstating a U.S. crude oil export ban would actually increase gasoline prices rather than reduce them, according to an analysis recently published by IHS Markit. Eliminating 3 million barrels per day of U.S. crude oil exports would disrupt the domestic and global oil supply chain and would likely increase gasoline prices. U.S. gasoline prices are connected to global oil markets—not the price of U.S.-produced crude oil. A ban on exporting U.S. crude oil may lower the price of domestic crude, but that could discourage production of both oil and natural gas, which would likely result in a tighter global oil market—not lower gasoline prices. The lost barrels on the global market from a U.S. export ban would have to be replaced by other oil producing countries, and it is not clear if all of that could or would be replaced in a tight market. The disruption of international crude oil flows would lead to a scramble to find other oil and that would generate additional upward pressure on crude oil prices—and thus increase the price of U.S. gasoline. It would simply introduce another significant supply chain problem.
On day 1, Biden stopped thousands of Americans from working on the Keystone XL pipeline, which would have supplied refineries in the Gulf with secure long term supplies of heavy oil from Canada. He suspended leasing on 2.46 billion acres of federal lands and waters – illegally, as it turns out – and only held the first lease sale of the year last week under a judge’s orders. The Build Back Better bill passed by the House has a long list of anti-oil policies, including increases in federal royalties and fees, plus new fees, new taxes, and barriers to leasing in the Arctic National Wildlife Refuge, the Pacific, Atlantic, and eastern Gulf of Mexico, as well as a fee on methane, also known as a “gas tax.”
President Biden’s poor policy decisions toward domestic oil and gas production have now forced him to tap into the nation’s emergency oil reserves. The decision to tap the U.S. stockpile of oil—the largest in the world with 620 million barrels—was a way for President Biden to show his administration’s focus on rising gasoline prices, which, along with rising inflation, have Americans polling low numbers for Biden’s Presidency. Biden’s anti-oil and gas policies have made the United States lose its oil independence achieved under President Trump and placed the nation at the mercy of OPEC. Gasoline is selling for almost $7 in parts of California and increasing over the entire country to the point that Governor Ron DeSantis of Florida will be asking his legislature to temporarily remove the state gasoline tax to bring prices down for Floridians.
Despite Biden deciding that releasing oil from the Strategic Petroleum Reserve is the answer, oil forecasters seem to disagree with Biden’s forecast of oil prices and how much this release will do to lower prices and for how long.