The recently announced release of 50 million barrels of crude from the Strategic Petroleum Reserve (SPR) by President Joe Biden almost begs the classic question “are we there yet?”

My follow up question to the president is also “do we know where we’re going?”

The reason for the draw from the SPR was to calm the frothy waters of consumer frustration as they face record high gasoline prices in the U.S. The move is also seen as an image refresher for the president with the midterms fast approaching.

The plan was for oil reserves to be tapped not only in the U.S. but also other in countries namely China and India.

With this united front, it would, of course (it was thought, at least) immediately lower the prices of crude and thereafter refined product prices, especially gasoline.

The price reaction so far has been, to say the least, muted – meaning there’s been little if any price movement at the wholesale level.

If consumers were made to believe that taking crude from the SPR was a gift from the government to force pump prices down they were misled. This is because when crude is drawn from the SPR, it’s a loan that must be repaid. In other words, taking 50 million barrels out of the tank means that 50 million must be returned to the tank. That’s because the SPR is for supply emergencies to be held in reserve and not a reservoir to dip into to manipulate pump and rack prices to suit political ambitions.

The problem is that any draw today will be refilled in late 2022 or early 2023 when West Texas Intermediate futures prices are $4/bbl higher than today.

And guess what will happen to pump prices when higher priced crude is used to top up the SPR tanks, and who will pay for it?

You guessed it, the consumer.

The question now becomes, “what will be the repercussions from the Saudis and the other members of OPEC +?”

The SPR move may be seen as a stick in the eye to the cartel who had previously planned on increasing monthly production by 400,000 bpd to ease supply and price concerns that have threatened economic recovery from the global pandemic.

It would not be a surprise if OPEC sees the SPR draws as artificially flooding the market as well as cutting back on production. And guess what?… This move will just increase crude and pump prices, not lower them.

Are we there yet?

My final question: “why did we even leave?”

– Roger McKnight – B.Sc., Senior Petroleum Analyst

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