$Oil - Drawing Down Reserves

Macro Perspectives: Fri 01 Apr 22

For the second time in four months, the President has announced a release of oil from the Strategic Petroleum Reserve (SPR).

In this case, it's a big promise - a million barrels a day for six months, or roughly 180 million barrels. That's about a third of the U.S. SPR.

Will it bring down oil prices?

Back in September, China released oil from its strategic reserve for the first time ever - Oil prices went up, not down.

Two months later, Biden issued an order to release 50 million barrels from the U.S. SPR. The price of oil did very little that day. The next day, on the evening of Thanksgiving, the news of the Omicron variant hit the wires, and the price of oil (and most markets) fell sharply. Within six weeks, oil prices were higher.

What should we expect from this big oil supply injection from the Biden administration?

Higher prices.

Why? Not only have we, and much of the world, committed to defunding new oil exploration, and regulating down domestic supplies, we are now (voluntarily) drawing down our reserves.

This SPR release only weakens our position, from an already weak position. OPEC countries will be even happier to sell us all the oil we will need (until we are all driving Teslas), just at higher and higher prices.

As will the domestic producers that have survived this planned supply destruction of the fossil fuels industry.