Analysis: Biden White House Goes Into Managing Oil Market With Release Of Inventories



US President Joe Biden announces the release of 50 million barrels of oil from the United States Strategic Petroleum Reserve as part of a coordinated effort with other major economies to help mitigate soaring gas prices making remarks on the economy and “falling prices” during a speech in the South Courtyard Auditorium of the Eisenhower Executive Office Building at the White House in Washington, United States, November 23, 2021. REUTERS / Evelyn Hockstein

Register now for FREE and unlimited access to

Register now

Nov. 24 (Reuters) – US President Joe Biden’s decision to tap the country’s emergency oil stocks marks the first time in two decades that a president has used the reserve to control energy prices instead of tackle a supply disruption.

The statement also marks the first coordinated statement with consuming countries outside the auspices of the West’s energy watchdog, the International Energy Agency.

Biden announced on Tuesday that the United States will release 50 million barrels of oil from the United States Strategic Petroleum Reserve in coordination with stock releases from China, India, South Korea, Japan. and Great Britain, in an attempt to cool prices that have reached seven-year highs.

Register now for FREE and unlimited access to

Register now

This could set a precedent that could be difficult for the president and his successors to meet when oil prices rise to a level that major importers find uncomfortable.

“The danger is that future administrations will use this supposedly managed withdrawal as a precedent for future versions of price controls,” said Tristan Abbey, chairman of the consultancy firm Comarus Analytics, who worked on energy at the White House for the Trump administration and under Senator Lisa Murkowski.

Biden’s move adds a new risk to the landscape for oil traders seeking to follow government policy decisions moving in the market, and for the drilling industry which may see it as a signal that governments in consuming countries see a price of around $ 80 per barrel as the upper limit for the market.

This could impact energy investments by capping the potential benefits of oil investments in the future.

“The consequences could be subtle but pervasive,” said Benjamin Salisbury, energy policy analyst at Height Capital Markets. “It will change the way energy players view future uncertainty and investment in new projects, whether it be drilling, oil services or pipelines. It opens the window to new risks. “

Biden’s announcement came after OPEC + producers have repeatedly ignored calls from Washington and other governments of consuming countries for more crude, and as Biden seeks to combat the rising price inflation ahead of next year’s congressional elections.

SPR is typically used to ensure adequate supply after an interruption, such as damage to a pipeline or oil field due to a hurricane, or a war that suddenly shuts down production from a regular supplier. No such disturbance currently exists.

The White House said the release was still warranted due to the unusual effects of the coronavirus pandemic.

“We are emerging from a pandemic that is unique in a century, and the supply of oil has not kept up with the demand as the world economy has emerged from the pandemic,” the spokeswoman for the press told Tuesday. White House, Jen Psaki.

While Biden’s decision to use the reserve to lower prices is unusual, it is not without precedent. President Bill Clinton released 30 million barrels of SPR in 2000 as part of an effort to reduce high home heating costs before winter, with no physical supply disruptions in sight.

Bob Yawger, director of energy futures at Mizuho Securities, said the current release is unlikely to have a huge impact on the market because the United States has structured most of its share in the form of a loan. instead of outright sale, and its international partners are contributing modest volumes.

“The US volumes are good, but it’s structured in a way that won’t have a huge impact,” Yawger said.

Together, the releases will total less than a day of global consumption. And for the US part, officials said some 32 million barrels will be offered in exchange – in which oil companies taking the crude must return it later, plus interest. The rest would be an accelerated 18 million barrel sale that had already been approved by Congress to raise money for the budget.

“We are not changing the policy of the SPR, the publication falls under the broad authority of the Department of Energy to both offer an exchange of the SPR and accelerate sales mandated by Congress to fill the supply gaps in the market.” , said a department official.

Oil prices in the United States have fallen 8% from a seven-year high of $ 85.41 a barrel reached on October 25 after early reports that the Biden administration would release oil in tandem with other consumers.

Sarah Emerson, senior director of Energy Security Analysis Inc, said international publications could benefit Biden politically.

“He doesn’t want to go into an election year with inflation,” she said. “He wants to be seen as doing something against high prices.”

But she added: “This is not a good policy. The price is not what the tool is for. It is to disrupt.”

Register now for FREE and unlimited access to

Register now

Reporting by Timothy Gardner and Richard Valdmanis; Editing by Simon Webb and Marguerita Choy

Our Standards: Thomson Reuters Trust Principles.



Comments are closed.