Over the past three months, the Biden admin – desperate to lower the price of gasoline and avoid a crushing defeat for the Democrats in the midterms – has been selling roughly 1 million barrels a day from the Strategic Petroleum Reserve, which has been drained by 125 million barrels so far in 2022, with nearly 70 million barrels already delivered to purchasers including several million going to China, roughly two thirds on the way to the original stated goal of 180 million barrels in SPR release (it is still unclear how Biden getting crushed in the polls amounts to an “emergency”).
But with oil still stubbornly sticky and the midterms looming, the White House found itself at a loss how to lower gas prices further – without of course actually increasing domestic US production as that would mean also losing the progressive/socialist/green-fanatic vote. Which is why on Tuesday morning, the Biden administration said it will sell an additional 20 million barrels of oil from the Strategic Petroleum Reserve held in hollowed-out salt caverns on the coasts of Louisiana and Texas, as part of the previous plan to tap the facility to lower oil prices, and bringing total sales to 200 million. The sales will take place in September and October, and are set to conclude just days before the November midterm elections. It wasn’t clear how much of the incremental barrels will go to China.
A senior administration official told reporters that the SPR releases have been a “supply lifeline” to oil and refining companies as the industry continues efforts to get oil production back online after declines during the peak of the COVID-19 pandemic. What he meant is that the SPR releases have been the only thing that has prevented Biden’s approval rating – already record low – from going negative.
The official also said that replenishment of the SPR – which of course will have to buy a massive 200 million barrels after the Democrats are crushed in the midterms – will take place after fiscal 2023, which ends in Sept 2022, meaning that with traders anticipating what is about to be the biggest telegraphed oil purchase order in history, the US may well end up paying hundreds of dollars per barrel.
One can only hope that China doesn’t invade Taiwan when the SPR is at its current level, the lowest since 1984.
Remarkably, the “energy experts” at the White House published some back of the envelope voodoo, according to which the 125 million barrel SPR drain has resulted in a 40 cent drop in gas prices. Well guess what happens when it comes time to replenish it.
News of the additional SPR release sent the price of oil from session highs to session lows…
… while sending the spread between WTI and Brent to $9, the widest since April 2020.
