Loren Steffy, UH energy researcher
WASHINGTON, DC - NOVEMBER 23: The preUS President Joe Biden speaks on economics at an event at ... South Court Auditorium in Eisenhower Executive Office Building on November 23, 2021 in Washington, DC. President Biden announced the release of 50 million barrels of oil from the Energy Department's Strategic Petroleum Reserve to tackle high energy prices which are at their highest level in seven years through the country before the holiday travel season. (Photo by Alex Wong / Images) Images
This week on the Oil Market Theater, a new version of the Strategic Oil Reserve.
Gasoline prices have gone up "steadily for most of the year and are now about 32% above pre-pandemic levels.energy are a major driver of inflation, which is at its highest for three decades.
What should Joe Biden do? No president wants to be held hostage by the oil markets, especially not when their popularity ratings drop and midterm elections loom.
The Biden administration wants to move its green agenda forward, but reality continues to stand in the way. It needs crude markets to cooperate in the short term so that it can focus on cleaner energy sources in the hope of reducing carbon emissions and fighting climate change.
So Biden once again watched " a page from the past , calling for the release of 50 million barrels from the Strategic Reservethan oil, an underground stockpile of crude created in response to the oil embargoes and gas pipelines of the 1970s.
Unlike the 1970s, however, today's higher prices stem from global supply and demand issues, not directed action. OPEC, fearing that rising COVID-19 infections in Europe will weaken global demand again, is sticking to its production quotas. American producers, who are much better placed than the White House to mitigate the supply crunch, remain on the sidelines, eager to convince investors that they believe more in financial discipline than in growth.
In this context, the SPR version is a blow to the global market. It does nothing to address the longer term issues that are creating the current pricing environment.
"The American volume in question - 50 million barrels - is a drop in the ocean, don'taccounting for about half of what the world uses in a single day, ”Chet Thompson, president and CEO of the refinery. American Fuel and Petrochemical Manufacturers business group, a "said in a statement. "A one-time token release of oil from the Strategic Petroleum Reserve will not have a significant impact on the current energy landscape.
In addition to production issues, prices at the pump are affected by the same issues causing shortages and higher prices for other goods - supply chain disruptions and increased transportation costs. And thanks to a remains " legislative from the era of oil shortages , the United States require mixing ethanol with gasoline. The prices of ethanol, which is made fromcorn, have jumped like most commodities, en " up 49% year-to-date.
Biden has convinced China, India, Japan and South Korea to join him in exploiting their reserves, implying that the coordinated release would ab make greater impact on the world market.
"Before long you should see the price of gasoline drop where you refuel," said declared Biden "while announcing the release of SPR.
Don't count on it. Prices at the pump are related to crude prices, and the " Crude prices rose 2.3% after Biden announced his plan.
Given the President's predilection for recycling Obama-era energy policy , he would havemust have known this would happen. After Obama announced a version of SPR in 2012, a Bloomberg News analysis found that in four versions over the previous eight years, the " gasoline prices went up after each of them.
But route the SPR oil at the pump is more complicated than before. On the one hand, the US refining capacity has not recovered from the pandemic. Five " refineries have closed permanently because COVID stifled gasoline demand last year. As a result, our domestic refining capacity has fallen to 18.1 million barrels per day, the "lowest since 2015.
Without forgetting that the routing of this crude from one of the storage areas of SPR to the pump issence is, in best scenarios, a process of several months. Any effect at the pump will occur long after the end of the current driving season.
The SPR version might, indeed, have an impact, but not the one Biden wants. This could add to the uncertainty that has rocked the markets for much of the year. Oil companies have cut some 60,000 jobs since the pandemic. Higher and sustained prices could bring them back, but if the administration's actions add to market volatility, laid-off workers are likely to be left on the sidelines.
As usually happens when a president runs to turn on the SPR taps, no one understands that the market is impressed. In fact, Smart Money is betting on the opposite result: Crude prices will continue to rise. Many producers have "reduced their hedging programs , leaving themselves fully exposed to this year's market recovery - and increasing their risk if prices fall. Pioneer Natural Resources said it would not add any hedging anytime soon, and Continental Resources is largely unhedged. In other words, those most at risk are convinced that prices will rise, without any hindrance from Washington.
It is increasingly clear that the SPR is misnamed. There is nothing strategic about it. It is a political tool, the Political Oil Reserve, or PPR, if you will, which serves less as a defense against the crisis than as a tool to reinforce the illusion that the president has some influence in the oil markets. principles of the free market.
In the decades since the creation of the reserve, the nature of crude markets has changed.exchange. More countries are now producing oil, including ours. Thanks to hydraulic fracturing, the United States has gone from being the largest importer of crude to that of one of the largest producers in the world. This persistence of supply allows the market to react more quickly to disruptions. In addition, the futures market is now more efficient and reacts more quickly to global issues that may affect supply.
All of this goes against the efficiency of what the administration does. Within hours of Biden's announcements, hedge funds abandoned futures contracts, what "drove prices down. Then OPEC responded by saying that it might tighten its production quotas in response, which pushed up prices.
While global supplies remain limited, the only crisis isPolitics. The administration must create the illusion that the president is doing something to fight against rising prices at the pump. Lift the curtain on the Oil Market Theater.
Loren Steffy is a freelance writer for Texas Monthly, an executive producer for Rational Middle Media and managing director for 30 Point Strategies, where he manages the editorial printing 30 Point Press. He is the author of five non-fiction books: "Deconstructed: An Insider 's View of Illegal Immigration and the Building Trades" (with Stan Marek), "The Last Trial of T. Boone Pickens" (with Chrysta Castaneda), "George P. Mitchell: Fracking, Sustainability, and an Unorthodox Quest to Save the Planet, the Man Who Thought Like a Ship" and "Drowning in Oil: BP and the Reckless Pursuit of Profit". His first novel, "The Big Empty ", was published in May 2021.
Steffy is the former economics columnist for the Houston Chronicle and waspreviously the Dallas (and Houston) office. chief and senior editor for Bloomberg News. His award-winning writings have been published in newspapers and other publications around the world. He holds a BA in Journalism from Texas A&M University.
UH Energy is the University of Houston's center for energy education, research and technology incubation , working to shape the energy future and forge new business approaches in the energy sector.