Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
President Biden is starting an oil war that he cannot win, and the causalities will be the U.S. consumers and union oil workers. After being rebuffed by OPEC Plus Russia to raise oil protection they now are embarking on a foolhardy adventure to try to manipulate the global oil markets with a release of 50 million barrels of emergency oil supply. The problem is that the real emergency is the Biden administration’s sinking poll numbers and a failed energy policy.
The Biden Administration is starting to understand that their energy policies have created a situation that Energy Secretary Jennifer Granholm finally admitted is a “crisis” and that in large part has been caused by the Biden Administration’s energy transition. Before that statement the administration blamed OPEC plus Russia, they blamed oil companies for price-fixing, yet now they realize that the blame falls on them.
Now as Democrats’ poll numbers plummet the Biden Administration is taking desperate measures to try to lower gas and heating bills ahead of the holidays as high prices are already impacting Americans’ travel and spending plans hurting the economy. Reports say that the Biden Administration plans an unprecedented intervention on global oil markets by leading a coordinated release of emergency oil reserves by China, India, Japan, and South Korea.
While that might seem like a good idea history has proven that the release will only have a short-term impact on prices and is an open declaration of an oil war with the OPEC Plus cartel. Oil reserves are meant for emergencies like war, hurricanes, and major oil supply disruptions. It was never meant to be an oil price control. To be an effective price control instrument global oil reserves would have to be increased 10 fold to influence a market where global demand will exceed 100 million barrels of oil demand a day.
India has stated that it intends to release 5 million barrels of oil from its reserves a number that is a drop in the bucket. The Energy Information Administration Agency estimate that global demand for petroleum products is at 98.9 million barrel of oil a day. It is unclear exactly how much the other players are talking about but if India’s number is an indication the release will cause a short-term price drop and cause prices to go up even higher than they would have without a strategic petroleum oil release. The U.S. is going release the bulk of the release and it’s going to be on the back of EU S taxpayers that are going to be funding this.
Maybe to make the reserves more effective we should be producing much more oil or call on OPEC and Russia to build more supply.
OPEC says the move is unjustified based on current market conditions. OPEC says that the move may impact their decision to raise output that they have always said was based on market conditions. It is highly likely that if they release oil from the reserves that OPEC will respond in kind, matching the cut, barrel for barrel with their production cut.
Yet the Biden Administration wants to start an oil war even though they do not have enough oil in their arsenal to win that war. The Biden Administration’s anti-fossil fuel policies have left the global market undersupplied and by draining our reserves as well as the reserves in China, India, Japan, and South Korea will at some point be replaced with oil from OPEC and Russia.
This planned release will only have a short-term impact on price but long-term ramifications for the global oil market. This move will give more power to OPEC and Russia and will put U.S. producers at a competitive disadvantage. OPEC Plus can hold out longer than global strategic reserves and they know that they will eventually be paid to replace those reserves.
There are even calls by some House Democrats to ban U.S. oil exports. Led by California Rep. Ro Khanna called for Biden to ensure “affordable and reliable energy for American families. We must use all tools at our disposal to bring down gasoline prices in the short term.” Of course, that statement is very telling, They only have plans to bring down prices in the short term to get their poll numbers up and to save their seats because they admit that their policies will drive up costs for energy in the long term.
Turn also the fundamental misunderstanding about the quality of U.S. oil is better suited to be refined foreign refineries because of its quality and so an export ban will only shut down US production and put U.S. oil workers out of work.
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