Biden The Master Oil Trader? Crude Drops Below $80 And US Government May Earn Windfall On Emergency Reserves, Relieving Pain At The Pump

At a time when commodity prices have been extremely volatile globally, President Joe Biden’s plan to use the strategic petroleum reserves (SPR) as a monetary tool is starting to relieve pain at the pump for the American consumer.

Following the 2022 midterm election cycle, the price of WTI crude oil went from $92.61 per barrel on Nov. 4 to $78.47 per barrel as of Friday morning.

As of November 2022, the average annual price of WTI crude oil is at roughly $97 per barrel, according to Statista.

What Happened: As the price of WTI crude oil has fallen by at least 18% in the last two weeks, this sent the national average gas price at the pump from $3.87 per gallon a month ago to $3.707 per gallon, according to AAA.

Since March 2022, the Biden administration has released a historic 180 million barrels of crude oil from the strategic petroleum reserves.

In efforts to combat OPEC+ supply cuts, Biden announced the release of 15 million barrels more of crude oil in October through December.

Biden said an independent analyst confirmed the release from the strategic petroleum reserves has played a large role in bringing down oil prices, which is why the U.S. will  continue to pull from it. To generate money for the taxpayer, the Biden administration is using the SPR as a monetary tool, as WTI crude oil and prices at the pump are falling.

Also Read: Jim Cramer Calls 2023 'Year Of The Yield': 3 Energy Stocks With Skyrocketing Yields

Why It Matters: When the price of crude oil falls below about $67 to $72 per barrel, the Biden administration will start filling the reserves back up, then release the oil when prices start to rise again. This could relieve some of the price shock at the pump, giving more purchasing power back to the consumer.

According to the U.S. Energy Information Administration, the U.S. is producing more than 11.9 million barrels of oil per day as of Aug. 30, 2022 — still down from August 2019 levels of 12.5 million barrels of oil per day.

The U.S. Energy Information Administration is forecasting U.S. crude oil production to reach a record high in 2023, reaching 12.6 million barrels of oil per day.

The SPDR Select Sector Fund - Energy Select Sector XLE is still up more than 63% year-to-date, but has stumbled in the last five days, falling by over 2%.

With oil prices at levels unseen since the 2008 financial crisis, firms such as Exxon Mobil XOM are reporting record-smashing profits.

The Last Word: Firms such as Pioneer Natural Resources PXD and Chevron CVX are planning on distributing excess capital through share repurchases and dividends, instead of ramping up production.

The retailer margin over the refinery price is more than 40% above the historical level, adding more than 60 cents to the average price per gallon of gas, according to the White House.

Biden has been calling on the energy industry to pass on its lower energy costs to the consumer and use its excess capital to pump more oil instead of increasing shareholder distributions.

With a global oil supply crunch, established oil and gas firms are generating some of their best profits in recent years, which does not encourage them to produce more.

Photo via Shutterstock.