US Oil Industry Mocks Biden Offer To Refill SPR At $72 As "Inadequate To Lift Oil Output"
Several months ago, we mocked the ridiculous idea spawned by some of the "best and brightest" progressives currently cogitating in the US, according to which even as Biden was actively steamrolling US energy companies by vowing to end US fossil fuel usage in a few decades and single-handedly crushing the price of oil through the biggest ever release of crude from the strategic petroleum reserve (where the term "emergency" now means not war or a natural disaster but Democrats lagging Republicans in midterm polling) he would be throwing them a bone by "promising" to buy oil if and when it tumbled much lower as otherwise US producers would have zero incentive ever to invest even one dollar in growth (or even maintenance) capex.... or so the "best and brightest" progressive thought went.
Progressives cheering the latest SPR news unaware that the government is literally giving out tens of billions in risk-free dollars to US energy producers arbing the SPR trade. https://t.co/572IYI8t9L
— zerohedge (@zerohedge) July 26, 2022
This is how the pro-socialist, far-leftist outlet Vox described this "brilliant plan":
In the summer of 2022, President Joe Biden had a problem. Gas prices had been soaring for most of 2021 and 2022, due to a combination of overhang from reduced production during the height of the Covid-19 pandemic and the Russian invasion of Ukraine. And American voters hate when gas prices go up. Biden’s approval rating plunged over his first two years in office. He needed some kind of policy response to address the problem and prevent his party from getting slaughtered in the midterms.
The plan he ultimately arrived at entailed massive releases from the Strategic Petroleum Reserve combined with a new policy of buying oil futures to provide producers with an incentive to pump more in the near to medium term, preventing another shortage from arising. This approach followed very closely a proposal put out in March by the advocacy and research group Employ America, written by its executive director Skanda Amarnath and his colleagues Alex Williams and Arnab Datta. The Employ America plan explained how the administration could use the petroleum reserve to durably lower gas prices, while also setting a price floor so the cost of gas didn’t fall so far that it imperiled the transition to electric vehicles and renewable energy.
The brain (we use the term loosely) behind this plan, Skanda Amaranth, also sarcastically dubs himself "Neoliberal sellout" (actually, we merely assume it is sarcastic), and at least on paper, his master plan was noble - to lower prices while also boosting oil sector employment. Alas, as progressives so often find out, there is an gaping chasm between their idealistic vision of the future and what actually ends up happening (for the best example of this just ask Europeans who blindly followed the delightfully insane ideas of a petulant Scandinavian teenager for their energy policy).
While this plan bore some fruit at least early on, when oil and gas prices did tumble (if only because the SPR was being drained by 1 million barrels every week), the drop has since reversed sharply after OPEC+ openly defied the Biden admin (the neoliberal model did not account for that "eventuality"), and Brent is now trading well above $90, and many banks are warning that oil will soar as high as $120 after the midterms once the SPR drain ends.
But what about the brilliant progressive plan to collar oil prices while encouraging employment with the stated SPR purchase price floor? Well - and this is why we said the plan was "ridiculous" - as Reuters reports, US shale oil executive Matt Gallagher this week took a poll on Twitter to gauge sentiment toward President Joe Biden's offer to stock the U.S. emergency oil reserve at prices around $72 a barrel, to give producers an incentive to drill more.
WH dribbling out last authorized 15million barrels of SPR in december, a 50% cut to summertime SPR release rate just as EU price cap sanctions hit Russia. Also authorized buybacks for SPR @$67-$72. Will prompt hit $72 in 2023 #OOTT
— Matt Gallagher (@MattG_PE) October 19, 2022
The result: nearly 80% of respondents said they did not expect oil futures next year will fall to a level that would trigger any U.S. purchases - negating any boost from what analysts called the "U.S. put," or using proposed Strategic Petroleum Reserve buys to set a minimum price for new oil production. In other words, the "forward guidance" on where the US would buy SPR oil would by itself assure that the price never fell that low.
"That announcement was making it appear like he was throwing a bone to the oil industry," said Trisha Curtis, CEO of consultancy PetroNerds, who dismissed the offer. But "what if oil does not fall to that price: Do we just keep our reserves low?" she asked rhetorically (the answer is of course).
The release of the last of a 180 million barrel sale coupled with a repurchase price was Biden "trying to walk a fine line between supporting his green base and trying to lower fuel prices. And he did neither," said Curtis.
Another reason why the Biden plan is idiotic: with oil now selling for about $85 a barrel, the offer price of about $70 "is a price where there is no supply growth," said Abhiram Rajendran, a director at consultancy Energy Intelligence.
But what was so patently obvious to everyone - except a handful of intellectually challenged progressives - is that even though US oil prices hit $120 per barrel this year, that did not trigger a production boom because of shortages and high costs for labor and equipment, said Hunter Kornfeind, oil market analyst at Rapidan Energy Group. The sheer intellectual arrogance of believing that there will be a capex boom if oil tumbles $50 lower but is propped up just because the US is refilling the same SPR it was draining to keep oil from rising above $100, is truly staggering.
Meanwhile, as Rebecca Babin, senior energy trader at CIBC Private Wealth said, it is tight oil supplies have pushed up price expectations into 2024. But that occurred apart from the SPR offer, she said.
If the Biden administration wants to boost oil supplies, it "should change its policies around producing more oil and gas in the United States," said Frank Macchiarola, a senior vice president at trade group American Petroleum Institute.
Of course, that won't happen as the same progressive groups that came up with this idiotic idea will be screaming from the rooftops, demanding that they know the oil industry better than, well, the oil industry.
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