Biden Won’t Be Able To Force Lower Oil Prices With Strategic Reserve, Experts Say

Biden Won’t Be Able To Force Lower Oil Prices With Strategic Reserve, Experts Say

John Hugh DeMastri on April 3, 2023

• The Biden administration would be unlikely to keep down prices at the pump by tapping the Strategic Petroleum Reserve if Saudi-led oil production cuts cause prices to once again surge, according to various experts who spoke with the Daily Caller News Foundation.
• The Biden administration had previously said that it would refill the SPR when oil prices fell, but U.S. Energy secretary Jennifer Granholm had said at a March congressional hearing that the process could take years, a statement that frustrated policymakers in Riyadh, according to The Financial Times.
• If you sat down and said ‘How will I make America less energy secure?’ … If you tried to string together a series of events, you couldn’t do better than the Biden administration has done,” Dan Kish, a senior fellow at the Institute for Energy Research told the DCNF.

The Biden administration will likely be unable to keep down prices at the pump by tapping oil from the Strategic Petroleum Preserve (SPR) as it did in 2022, if Saudi-led production cuts cause prices to once again rise, according to various experts who spoke with the Daily Caller News Foundation.

OPEC+, a group of oil producing nations including Saudi Arabia and Russia, announced that they would cut oil production by roughly than 1.16 million barrels per day beginning in May, bringing the group’s total production cuts to 3.66 million barrels per day, Reuters reported. Oil prices surged roughly 6% Monday morning, and while the Biden administration had previously drained the SPR to its lowest level since 1983 in a bid to push down surging gas pricesfollowing the Russian invasion of Ukraine, if OPEC continues to push up oil prices, such a solution would be unlikely to work twice, Peter Earle, economist at the American Institute for Economic Research, told the DCNF.

“The Biden administration is likely to be extremely cautious about tapping into the SPR again, as the war in Ukraine is becoming a slog and saber rattling against China regarding Taiwan is escalating,” Earle said. “They won’t want to dip into the Strategic Reserves, I’d think, until or unless prices reach the levels seen early in the Russo-Ukraine War,” which he estimated to be roughly $120 per barrel in West Texas Intermediate, which was at roughly $80.40 at time of writing, up $4.75 from the day prior.

OPEC+ has made a surprise ~1.1 million barrels per day oil production cut as of next month.

Image below for cut: pic.twitter.com/WkwKhxncKG

— unusual_whales (@unusual_whales) April 2, 2023

This sentiment was shared by Mark Mills, a faculty fellow at Northwestern University’s McCormick School of Engineering and Applied Science, who suggested that the production cuts would exacerbate the strategic weakness caused by a historically low SPR and make it more difficult for the administration to refill the SPR without causing inflation, in a statement to the DCNF.

“This will delay the already delayed plan to refill the SPR, especially if it is … to be triggered only when oil prices are low,” Mills told the DCNF. “If the SPR is refilled at a rate roughly equal to that which it was emptied, about 1 million barrels per day, that would put upward pressure on energy prices at a time when the administration is (and should be) worried about fueling inflation rising.”

The Biden administration had previously said that it would refill the SPR when oil prices fell, but U.S. Energy secretary Jennifer Granholm had said at a March congressional hearing that the process could take years, a statement that frustrated policymakers in Riyadh, according to The Financial Times. OPEC’s cuts followed over the weekend partly in response to this sentiment, which contradicted reassurances that had been given to the Saudis, and partly due to declining oil prices, according to MarketWatch.

The strategic and economic consequences of an OPEC push to raise prices could have been avoided if the administration had taken steps to unleash domestic oil production, Jack Spencer, a senior research fellow at the Heritage Foundation told the DCNF.

“What Biden should do is to recognize the vulnerability he has created for the United States through his restrictionist policies and reverse them,” said Spencer, referencing the historically low number of drilling leases issued by the administration and other recent efforts to restrict American oil and gas production. “It’s easy … to point the finger at OPEC just like it was easy to point the finger at Putin — and I’m not justifying the actions of either of those actors — but the fact of the matter is, is that we put ourselves in positions of vulnerability.”

By disincentivizing U.S. production, the administration has put America in a position where its energy future will be “dominated” by China, Dan Kish, a senior fellow at the Institute for Energy Research told the DCNF. China is acquiring an increasing influence over Saudi Arabia, and controls the supply chain for green technologies that are a core part of the Biden administration’s efforts to transition from oil and gas, Kish said.

“If you sat down and said ‘How will I make America less energy secure?’ … If you tried to string together a series of events, you couldn’t do better than the Biden administration has done,” Kish said.

Even if the Biden administration takes no steps to refill the SPR, the production cuts will likely put pressure on inflation thanks to increased prices at the pump, Earle told the DCNF. While many economists currently estimate that inflation will fall to between 3.5-4% by the end of 2023 — from the most recent estimate of 6% in February — increased oil prices could push inflation into the 4-4.5% range, Earle said. 

While the Federal Reserve would normally raise interest rates to combat sticky inflation, “because the jury is still out on whether the mini-banking crisis has resolved or not, it is unlikely as of now that the Fed would raise rates to combat those new inflationary pressures,” Earle told the DCNF.

Ultimately, the political consequences of a potential energy price spike could prove harmful to the Biden administration, Mills told the DCNF.

“If oil supply is constrained, and comes from places not friendly to us, and if prices take off again, it won’t be a good time to be held responsible for the unpleasant consequences,” Mills told the DCNF.