No one to blame for the oil crisis but Biden's lousy policies
If you are not Greta Thunberg, but the president of the United States, what's the first thing you do when returning from a global climate conference — especially one where you pledged to reduce emissions by over 50% in eight years? How about releasing an additional 50 million barrels of oil from your strategic reserves while begging domestic and foreign oil producers to ramp up production? Sorry, that was trick question.
The move by the Biden administration a few weeks ago to fight soaring gasoline prices by tapping U.S. strategic reserves is not only bad policy, but also destined to fail. High prices at the pump are completely his doing, and now the political fallout is hitting not just the flyover states, but the compounds of coastal liberals. This is nothing more than a knee-jerk response for the news cycle.
Let's do the math. The pledge is to release 50 million barrels from strategic reserves into the market along with similar pledges from ally nations that add up to about that much as well. That's a total of 100 million barrels. Ready? That's one day's worth of global consumption. One day!
No, this will have zero effect on the market price at all. It's not even a rounding error. In fact, spot oil prices are rising in response, and most traders are pricing oil futures a few months out at levels that put sweet light crude around $100 per barrel. That's 25 bucks more than it trades at now. What does that mean? It means more than a buck more per gallon at the pump!
So let's talk about that "sweet light crude." The oil that Biden is dumping on the market isn't what refiners really like to turn into gasoline. It's a heavy sulfur-laden mixture that is difficult — read that as expensive — to refine into gasoline. That means that even if its release did drive down overall oil prices — actually, omnicron did that, but only by a few bucks a barrel — it will drive up refinery costs. And...wait for it...turning it into gasoline releases significantly more pollutants than sweet light crude and requires almost double the energy. So much for reducing emissions by 50%.
The U.S. did strong-arm a few countries into going along with us like Japan and the U.K., but the real horsepower has been ominously silent on helping. OPEC has had no comment about ramping up production, nor has Saudi Arabia. Why would they? By choking U.S. production from day one and effectively doubling oil prices, Biden gave them a gift! In fact, U.S. oil field production is down by over 1.5 million barrels a day just since January. Remember two years ago, when we produced so much oil that there was no place to store it? And the even richer part of this charade is committing to cutting U.S. emissions while begging other countries to ramp theirs up.
Let's not forget about the policy implications of releasing strategic reserves. Former energy secretary Dan Brouillette said it best. "It's not a supply emergency, and the only emergency I can see in this case is a political emergency." And it is a political emergency only because the current administration canceled pipeline permits and oil drilling leases on federal lands. But now, just eleven short months down this road, Biden has made a U-turn and auctioned off 1.7 million acres in the Gulf of Mexico for drilling. You can't make this stuff up!
And lastly, there's the blame-casting. "It's all big oil's fault. The producers are making billions, and the middle class is paying the tab for oil tycoons' steak dinners." It is true: big oil companies earn billions of dollars. But they also invest hundreds of billions into infrastructure just to get a gallon to the pump. Chevron/Texaco, for example, will make about $10 billion this year. That's a lot! However, that profit is on a market capitalization of over $225 billion. Quick math — it's about a 4% return to the "tycoons." Nobody is buying steaks with that.
High gasoline prices are completely political this time around — no wars, no refinery explosions, nobody to blame but those who don't understand the simplest economic concepts. Now, with hypocrisy spewing from the White House by dumping reserves, begging allies and enemies alike, and selling off millions of acres for new oil drilling, it's clearly backwards-land.
And why do you think grocery prices are soaring? It all comes by truck, and trucks run on oil!
Kevin Cochrane is an economist who teaches economics and business at Colorado Mesa University. He previously taught at the University of California and was a senior national banking executive.
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