Strategic Petroleum Reserve Release

A Pathetic Attempt to Lower Prices

Yesterday, President Biden officially announced that his administration will release 50 million barrels of oil from the Strategic Petroleum Reserve. His reasoning? To lower gas prices.

This is a desperate attempt to curry favor with the American people as support for the administration dwindles.

Inflation

Price inflation in the US is at historical highs and shows no sign of subsiding anytime soon. But, will release of oil reserves ease prices? Not likely. And even if they did, it would be temporary only. To think that the rise in oil and gas prices is the reason for a general rise in all other prices mistakes the symptom for the disease.

The general rise in prices is a result of monetary and fiscal policy run amok. When the government creates money out of thin air to fund the various boondoggles it champions, the value of the currency depreciates. In other words, the purchasing power of the currency is stolen from the American people in a slight-of-hand move to finance the government. It is a hidden tax.

You can’t increase the money supply by 37% over 20 months (an increase of 5.7 trillion dollars) and expect everything to come up roses. See the spike in money supply (M2) below at the start of February 2020.

Strategic Petroleum Reserve

The US Strategic Petroleum Reserve is a stockpile of oil created in 1975 for the purposes of mitigating supply disruptions in emergencies. Its creation was sparked by the 1973-’74 oil embargo. There is a total capacity of 714 million barrels. As of November 19th, the total inventory was 605 million barrels. Biden plans on releasing 50 million barrels — 8% of the inventory.

It’s interesting to note that the average price paid for oil in the reserve was $29.70 per barrel. Oil is currently at ~$78 and ~$82 per barrel for West Texas Intermediate (WTI) and Brent crude, respectively.

To recover the reserves that Biden plans to release will cost the US roughly $2.4 billion dollars, assuming today’s WTI price. This will only add further upward price pressure in the long run since the US government will have to finance the purchase.

According to the Department of Energy (DOE), 50 million barrels is equivalent to approximately 85 days of supply (0.59 MMbbl/day) of total U.S. petroleum net imports. Also according to the DOE, it takes 13 days from the President’s order for the oil to reach the US market. So let’s check back in 2-3 weeks and see what happens.

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