President Biden’s release of 180 million barrels, one million per day for 180 days, will prove to be a wasteful, futile gesture. Why? Both OPEC and Russia must co-operate and not further reduce oil supplied to the global market to give price relief to the U.S. consumer. They did not co-operate on the prior 50 million barrels that were released in the past few months by President Biden. Oil prices stayed high. Everyone knows the amount of oil that the U.S. has in the Strategic Petroleum Reserve, or SPR, just like you know the stacks of chips on the poker table. It is simple matter to run Biden out of this game.
The U.S. imports 6 to 8 million bbls per day of heavy grades of crude oil to match up with our domestic refineries. Consequently, it is the global oil price that we pay domestically. Because the Obama administration eliminated the U.S. oil export ban, the release from the SPR goes into the global market. Foreign oil companies and international oil traders bought oil from the prior releases. The U.S. taxpayer spent the money to build the SPR, but the scheduled release does not directly benefit the U.S. consumer.
The SPR was built to alleviate domestic supply shortages, but there are no gasoline lines or crude oil shortages. The Biden administration is just unhappy with the price of war. There is no escape from the fact that the U.S. voter is going to pay this price as consumer or taxpayer.
The White House fact sheet demonstrates a shocking lack of understanding of the domestic oil industry and U.S. energy markets. It continues a disingenuous spin advanced by the Trump administration, that of the U.S. being a net energy exporter. So what? We do not fuel our cars or airplanes or tanks with coal and LNG any more than we directly fuel our vehicles with wind or solar energy.
It is a false equivalency to state that 9,000 issued permits to drill on federal lands are equal to oil in storage—miles beneath the ground and requiring millions of dollars per well to extract if there really is an accumulation of oil present—and that not drilling these wells is depriving the American consumer of cheap fuel.
Let’s review the situation.
The domestic oil industry is starved for capital. It has been the worst performing sector in the S&P for more than a decade, and no one on Wall Street is clamoring to invest.
The domestic oil industry via the shale plays, Alaska, and deep-water Gulf of Mexico is the highest cost producer in the global market.
The domestic oil industry has lost tens of thousands of jobs since the Saudi-led price war that began in December 2014. These workers are not coming back.
The cost of drilling wells is up by more than 30% due to the Trump steel tariffs. Steel supply chains are so disrupted that it is exceedingly difficult for oil companies to obtain the pipe and equipment they need—some now harvest pipe from old wells.
The White House 2023 budget proposal eliminates tax benefits for the oil industry, and President Biden called for penalties to be levied on oil companies that have not begun drilling federal leases. If the U.S. does change long standing tax law and commercial contracts for the oil industry, the nation will join an infamous pantheon that includes Venezuela, Russia, Mexico, and Israel.
Senators Sanders and Warren have called for the return of a Crude Oil Windfall Profits Tax. Such a tax failed to accomplish its goals in the 1980s, drove U.S. producers overseas, and increased our reliance on foreign suppliers. It would be a major cost increase for producers.
In view of these facts and risks, put yourself in the place of a U.S. oil company executive—the White House is increasing my costs and now competing directly with me by releasing oil to drive down my price to further reduce my profits. I cannot get capital. The Saudis could just as easily flood the market again after the midterm election. What is my upside? Why take the risk?
The U.S. is at war with Russia—just not a shooting war yet. Following John Nash (“A Beautiful Mind”) and his Nobel winning game theory analysis, Russia and OPEC are likely laughing as the White House taps our strategic reserve just to placate voters. Biden is playing a short game while Russia and OPEC are playing a long game. They could just as easily withdraw two million bbls per day and weaken us further while the voter blames Biden for the price at the pump. It is a no-win situation for the White House. It is a win-win situation for Russia and OPEC.
