Desperate times call for desperate measures, says Phil Flynn of the PRICE Futures Group.
The Biden administration is desperate as their poll numbers fall while crude oil (CL=F) prices soar. So what should they do to appease angry voters? Well, it appears everything and all except to admit that his green energy policies of cracking down on investment in fossil fuels is a major part of the problem. The other part of the problem is the Biden administration’s failed diplomacy with OPEC and mainly Saudi Arabia, the country that Biden wanted to make a pariah state.
Reuters is reporting that the Biden administration is considering releasing up to 180 million barrels of oil over several months from the Strategic Petroleum Reserve (SPR), four US sources said on Wednesday, as the White House tries to lower fuel prices. Reuters says that the latest amount of US oil released being considered, which is equivalent to about two days of global demand, would mark the third time the United States has tapped its strategic reserves in the past six months and would be the largest release in the nearly 50-year history of the SPR as reported by Reuters.
This announcement comes on the day that OPEC will once again ignore the Biden administration’s calls for more OPEC oil. If you remember back in November, the Biden announced a 50-million-barrel release from the reserve along with 30 million barrels from other nations. The Biden administration acted back then in what they thought would be a message to the OPEC+ cartel. Yet the effort failed. While prices did sell off, it was not because of the SPR release but because of the omicron variant of Covid-19 that caused a demand drop.
So what a coincidence that Biden announced the biggest release from the SPR ever on the day that OPEC is going to shun the Biden administration by sticking to their 400,000 barrel a day script. Yet OPEC will laugh it off. They know that this move will only increase the demand for their product. They also know that it will further encourage less US oil production as it will discourage oil investment in shale.
Let me give you a real-time example. Just look at Wednesday’s Energy Information Administration (EIA) report. The EIA reported that the US released 3.0 million barrels of oil from the Strategic Petroleum Reserve. That is a very big weekly release. Yet despite that release, oil inventories fell by 3.4 million barrels. Even with Biden’s releases from the strategic reserves, the US oil supplies are still 14% below the five-year average. This is a real net-zero, not for emissions, but for the supply and price.
Reuters says that the International Energy Agency (IEA) member countries are also set to meet on Friday at 1200 GMT to decide on a collective oil release, a spokesperson for New Zealand’s energy minister said in an email, aimed at calming global crude prices that scaled 14-year highs this month amid the Russia-Ukraine conflict. The IEA has lost so much credibility that OPEC is dropping them as a secondary data source.
Biden is also looking at allowing more smog in his desperation to get gas prices down. Stephanie Kelly at Reuters reported that the Biden administration is considering allowing summertime sales of E15, a higher-ethanol fuel blend, as a way to lower pump prices following Russia’s invasion of Ukraine, sources tell me. The move would be a temporary lifting of summertime restrictions on E15 that are in place because of concerns E15 contributes to smog in hot weather. Yet what is a little smog when your poll numbers are so low because of your green energy policies. So maybe you should try to win back votes by creating more smog. Besides ethanol ending stocks, unlike other petroleum products, are at a season-high. In the week ending Mar. 30, weekly US ethanol ending stocks were 26.5 million barrels, a season record and above stocks levels seen last season.
The bottom line is the selloff in oil is going to be short-lived we believe and we should use this SPR related sell-off as a buying opportunity. The back end of the curve in December of 23 is little moved because of the realization that this oil will be long gone by the time. So in the back-dated months, it might be time to take advantage of the dip in the back months to get long on oil.
The EIA also reported that, “Total motor gasoline inventories increased by 0.8 million barrels last week and are about 0% above the five-year average for this time of year. Finished gasoline and blending components inventories both increased last week. Distillate fuel inventories increased by 1.4 million barrels last week and are about 16% below the five-year average for this time of year. Propane/propylene inventories increased by 0.1 million barrels last week and are about 23% below the five-year average for this time of year.
We get the EIA natural gas report today in a market that has seen great support as the Biden administration is promising more LNG supply to Europe. Dow Jones points out that this year natural gas prices climbed into spring, thanks to record export volumes and promises from the White House to support the shipment of even more liquefied natural gas, or LNG, to allies across the Atlantic to supplant Russian supply. Dow says that US natural gas futures for May delivery ended Wednesday at $5.605 per million British thermals. That forecast is echoed by energy producers. The bulk of oil and gas executives surveyed this month by the Federal Reserve Bank of Dallas said they expect natural-gas prices to end the year between $4 and $5.50. Over much of the past decade, it took blizzards to push prices that high.
Learn more about Phil Flynn by visiting Price Futures Group.