Biden's last resort to lower oil prices sees little impacts - The Average Joe

    Biden’s last resort to lower oil prices sees little impacts

    Victor Lei — Head of Research

    November 24, 2021

    oil

    November 24, 2021

    Biden is releasing 50M barrels of crude from the Strategic Petroleum Reserve — in coordination with Britain, China, India, Japan and Korea — for the first time in a decade.

    What’s the big deal? In 2021, short supply and high demand led to surging oil prices — making energy the top-performing sector of the year. But high oil prices are a problem for consumers and businesses — which is also contributing to high inflation.

    The release of strategic supplies is Biden’s latest attempt at lowering high prices, after several failed ones…

    • Failed to convince OPEC+, a group of oil-producing countries, to raise production levels.
    • Called on the Federal Trade Commission to investigate whether gas companies are illegally maintaining high prices.

    Biden has limited options and releasing reserves was a last resort.

    Dicey situation: Instead of falling, the price of oil jumped after the news. In the long-term, it’s uncertain whether the release will impact pump prices:

    • Some countries involved either haven’t made a final decision to participate or on the amount to release.
    • Price will be impacted depending on the final amount released — according to the acting administrator of the US Energy Information Administration.

    And the move might not be enough…

    • Analysts cautioned for long-term downside if Biden released reserves — with OPEC+ warning they would retaliate by holding back more oil.
    • The release would have a political meaning but not one big enough to impact prices — according to Tony Fratto, a former Treasury and White House Official (via TWP).

    Looking forward: The next OPEC+ policy meeting is on Dec. 2, and if they decide to hold back oil production, oil prices could be in for another move up.

    Must-read: The future of 2021’s top-performing sector.

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