Global oil markets are laughing off U.S. President Joe Biden’s announcement to release another 15 million barrels of oil from the Strategic Petroleum Reserve, extending the previously announced release through the month of December. Traders realize that the amount of oil that they’re talking about is really a drop in the bucket. With every barrel they release, the U.S. reserve gets smaller. Now, the Biden administration wants to try to tell oil companies that they will put in a floor price for oil by buying it back at $70 so they can make the type of investments in oil and gas that the administration has been blocking in the past.
Biden tried to paint himself as the “Fossil Fuel” president by saying, “let’s debunk some myths here. My administration has not stopped or slowed U.S. oil production, quite the opposite. We’re producing 12 million barrels of oil per day. And by the end of this year, we will be producing 1 million barrels a day, more than the day in which I took office. In fact, we’re on track for record oil production in 2023.”
So, I guess he is taking credit for record-breaking oil and gas production. Someone should let Greenpeace know. Then he goes on to blame oil companies for not raising production enough. Is that like when he blames oil companies for gasoline prices going up but takes credit for them when they come down?
The president bashed the oil companies saying, “So my message to oil companies is: You’re sitting on record profits, and you’re – and we’re giving you more certainty. So you can act now to increase oil production now. The third thing I’m doing is I’m calling on oil companies to pass the savings on to consumers. Consider this: In the second quarter of this year, profits at six of the largest publicly traded oil companies were more than $70 billion. That’s $70 billion in just one quarter – 90 days. Seventy billion. So far, American oil companies are using that windfall – the windfall of profits to buy back their own stock, passing that money on to their shareholders, not to consumers. In fact, in the first half of the year, those same companies spent over $20 billion buying back their own stock and, most importantly, buying back – a buyback that – the most significant buyback in the last – almost a decade. That’s great if you own a lot of stock in oil companies or if you’re an executive in an oil company. It puts a lot of money in your pocket. That – it’s how you get paid. But it’s not the case for the vast majority of Americans paying at the pump.”
Biden also showed that he has no idea how the relation between oil price and product price relates and changes, especially when he discouraged the massive amount of investment needed to increase our refining capacity. He said, “In the past two weeks, the price of oil has fallen $4 a barrel. ” And you think – and thanks in large part to steps we’ve taken this year, the price of oil has fallen nearly $40 a barrel since mid-June. That’s a 30% drop in the price of a barrel of oil. But guess what? Gas prices haven’t fallen that much. And it’s not right. Gas prices at the pump should be lower. “In fact, if retailers and refiners were earning the average profit they’ve made over the last 17 years, Americans would be paying at least 60 cents less per gallon for every gallon they buy. Say it again: 60 cents less for every gallon they buy. That makes a big difference in a family."
The reality is that reduced refining capacity, as well as new regulations on refiners have worked to increase prices. Refiners based on capacity have squeezed out a record amount of product. The Biden administration wants its oil cake and eat it, too. On one hand, they want to take credit for taking steps to end our use of fossil fuels, while at the same time take credit for raising oil production. They can’t have it both ways. The reality is that this administration has no real plan for a green energy transition. Oh sure, they throw a lot of money at green energy projects, but they do not give any thought to how their policies impact the economy nor do they give any thought to how it impacts our national security. If they did, they would stop the SPR releases now.
So, if Biden says he is buying oil back at $70 a barrel for the SPR, does that put in a floor for oil at $70? If he is trying to put in a floor, then maybe he has more things in common with Saudi Arabia than he thought he did. So as we leave Biden’s fantasy energy world, the reality is that U.S. inventories are tightening and the releases from the Strategic Petroleum Reserves are creating a false sense of security that will lead to a major price spike down the road.
Just yesterday the EIA reported that U.S. commercial crude oil inventories decreased by 1.7 million even after a 3.6-million-barrel release from the SPR. At 437.4 million barrels, {{8849|U.S. crcrude oil inventories are 7% below average. SPR barrels are at the lowest level since 1984.
The EIA said that distillate fuel inventories increased by 0.1 million barrels last week and are about 20% below the five-year average for this time of year. Bloomberg News put that in perspective: “The U.S. has just 25 days of diesel supply, the lowest since 2008, according to the Energy Information Administration. At the same time, the four-week rolling average of distillates supplied, a proxy for demand, rose to its highest seasonal level since 2007. While weekly demand dipped slightly, it’s still at its highest point in two years amid higher trucking, farming and heating use.”
Natural gas prices continue to be under pressure, but from a technical standpoint are getting extremely oversold. Today we get the Energy Information Administration injection report and we’ve seen some incredible injections over the past few weeks. It’s possible that if we get a bullish report or a smaller-than-expected injection we could see a bottom. The weather forecasts are starting to turn cold, and anything that disrupts the injections into storage could have a dramatic turnaround effect on prices.