SPR Will Never Be Refilled

Written By Christian DeHaemer

Updated May 15, 2024

Yesterday, I told you that I paid $4.08 per gallon of gas, which seemed expensive. Gas prices are going up. The national average is now $3.82, up from $3.53 last month. It's a good bet the prices of oil and gasoline will continue to go up, and I’ll tell you why.

Oil prices move on a variety of factors including geopolitics, global economic growth, and supply. For the past 50 years, after the energy crisis of the early 1970s, one of the major objectives of the U.S. federal policy has been to become energy independent.

The goal was to free ourselves of dependence on the Middle East and its endless wars and backbiting politics. And for the past decade or so, the U.S. has been successful — in the former, anyway. Since 2020, the U.S. has been a net oil exporter. 

However, oil is a fungible commodity. Production cuts in one place push prices up in another.

Anti-oil philosophies at home and production cuts abroad have started to push oil prices higher.

This price gain has been delayed by a slow reopening of China as well as the Biden administration selling half of America’s Strategic Petroleum Reserve (over 250 million barrels) in order to lower prices and win the midterm elections. The reserve is now half full and at a level last recorded in 1980.

This in itself was a good move. The government of the U.S., like the Saudis, should play market maker with its oil. Selling at high prices is smart. The problem is that it continued to sell when prices fell and continued to fall. Not buying at the low is dumb. 

The government sold when it should have been buying. And just last week, the Energy Department said it would delay buying back oil to refill the SPR because oil prices are over $80.

Last year the White House said the plan was to refill the SPR “at or below $67–$72 per barrel.” If Biden hadn't told everyone about this and instead had just done it, it would have been the best thing he ever did.

But not only did the government tell the competition its buy price — it also couldn’t pull the trigger when the price got there.

Mad Arabs

The Saudis have taken umbrage with the Biden administration ever since he called them a "pariah" state and reversed his agreement that he would start refilling the SPR after the election.

You may remember Biden going to the Middle East hat in hand, begging for more oil, only to get laughed at. He got a poor reception, while Xi Jinping, who came the next week, got the full pageantry and fanfare. This was a full dis in diplomatic terms.

Bin Salman and the leaders of Saudi Arabia are the best oil traders in the world. They know the oil game. Biden says the U.S. didn’t buy because the price went up again. But the price went up because the Saudis knew at what price to announce a production cut. It’s like clockwork.

And if that weren't enough, Energy Secretary Jennifer Granholm has said on CNN that she intends to refill the reserve, but that it might not be completed during Biden’s first term, which ends in January 2025. It won’t happen in his second term either.

To make a long story short, failed diplomacy, anti-hydrocarbon domestic policies and shortsighted SPR selling has united the major global oil producers against U.S. interests. Expect the price of oil to go up from here and the SPR levels to remain half full. 

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Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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