Joe Biden became the oil trader of the year

President Joe Biden speaks into a microphone with the words

President Joe Biden speaks into a microphone, with the words “Plan to lower gas prices by at least $1 a gallon” projected behind him.

It worked.

Gas prices were a major story in 2022: Russia’s invasion of Ukraine rocked energy markets and some predicted that the US dollar could be taken over by a new commodity-backed trading currency.

Instead, it appears the US government has made the oil trade of the year: by releasing 180 million barrels of crude oil from the Strategic Petroleum Reserve between March and the end of this year in an effort to mitigate the effect of rising prices. The US government appears to have made about $4 billion as prices fell dramatically over the year.

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Sold when crude oil prices were high, the US captured billions in value. By a commonly used measure, the price of crude oil in Texas peaked at about $124 a barrel in March, and the average price during the SPR sales period was about $96; today that oil costs just $73 a barrel.

These are paper gains, to be sure: the US is still striving to replenish the reserve, and prices may rise in the process. On December 16, the Department of Energy issue a request to purchase 3 million new barrels of crude oil, after releasing about 200 million barrels in 2022. There are currently about 382 million barrels in reserve.

Why Did Biden Release Oil From the Strategic Petroleum Reserve?

Using the SPR helped the US weather geopolitical storms by moderating increases in energy prices due to sanctions against Russia after it invaded Ukraine in February. At the same time, the countries coordinating as the Organization of the Petroleum Exporting Countries Plus Other Member Countries (OPEC+) have been limiting production in an effort to protect the value of their fossil fuel resources by slowing the fall in prices.

The SPR releases seemed to have a material effect on gas prices: After peaking in June at a national average of $4.80 per gallon, US gasoline prices have fallen to $3.10. That’s higher than just before the pandemic, but lower than average prices in the first half of the 2010s, before widespread adoption of fracking made the US an oil-producing powerhouse.

Whether you view OPEC’s decision in October as an attempt to influence US domestic politics or not, the SPR has helped protect both Americans and the rest of the world from high energy costs. While much attention has been paid to the effects of the decision on US markets, the releases resulted in lower prices worldwide. Russian President Vladimir Putin was apparently confident he could use his country’s oil production as a weapon against Ukraine’s allies, but the arrival of winter (and rising heating costs) has yet to shake their resolve. That’s partly due to the SPR releases and other efforts to increase energy supply.

The real trick is buying low

Releasing oil when prices are high is a fairly simple tactic. Now some economists and policy analysts want the SPR to use its market influence more widely. Employ America has argued that the SPR should use futures contracts to put a floor on the price of crude oil, which would realize those gains but, more importantly, help achieve stable levels of production.

Oil companies in the US have been reluctant to invest in new drilling this year, even as prices skyrocketed; investors preferred spending free money buying back shares after years of losses due to overproduction. Now the DOE has said it will develop rules to buy oil futures at a price point of about $70. That could reassure oil companies that they won’t be undermined by OPEC if they invest in oil that is more expensive to extract. .

Some environmentalists are not enthusiastic about this idea, as it will lead to more oil consumption and more carbon dioxide emissions, all things being equal. Lawyers create a kind of climate realistic, arguing that abundant supplies of fossil fuels are politically and economically necessary for the transition to a zero-carbon economy: there must be something to drive the production of renewable infrastructure and keep the economy going until it decarbonises. If energy prices didn’t stabilize now, the Federal Reserve would probably raise interest rates more quickly, making a recession (and the human misery that comes with it) more likely.

In the short term, oil watchers are focused on China’s decision to move away from its tough anti-covid policy. Reopening could lead to higher prices as demand from Chinese consumers and businesses grows, but it is difficult to predict how increasing cases of the virus will affect their behavior.

That’s one reason why those oil futures contracts make sense for the DOE: they can book profits and give oil producers some guidance for the future. But if there’s a recession next year, the price of oil could drop even further, making the government a bit dumb. That may be a price worth paying if it helps boost energy supply, but it’s also why some people are skeptical of government agencies that speculate like commodity traders.

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