Another Biden Publicity Stunt. Don’t Fall For This.

With prices for gas at the pump soaring, Joe Biden needs some relief from angry Americans suffering through the worst inflation in forty years.

The inflation is not limited to what you pay to fill up your car. Truckers have to pay the same higher prices for diesel fuel, which adds to transportation costs and adds to the final price of delivered goods. There’s nothing the Fed can do to stop the inflation because it’s coming from the supply side, which the Fed has no control over.

Higher interest rates won’t increase the supply of oil. The Fed has no mandate to drill for oil or discover natural gas resources. The Fed is helpless. So, what does Biden do?

As described in this article, Biden is releasing one million barrels of oil per day from the Strategic Petroleum Reserve. That will accomplish nothing at all.

Here’s why: The U.S. uses about 20 million barrels of oil per day. So, the 1-million-barrel release from the reserve only adds about 5% to the supply. But it doesn’t really add anything to the supply because importers will simply reduce imports or domestic drillers will reduce output to equilibrate for the new oil.

There never was an oil shortage in the U.S., so adding a new source of oil doesn’t alleviate a shortage that never existed. It simply causes some oil to be redirected to other buyers.

Oil is a global market. The price is set mainly on futures exchanges in London and New York. Those markets focus on a wide variety of market variables of which the release from the reserve is only one. In fact, global output is about 92 million barrels per day, so the U.S. reserve addition is only 1.08% of total output. That’s hardly enough to affect the world price one way or the other.

It’s also the case that U.S. refineries are not geared to process the type of oil in the reserve without significant modifications that take time. In short, the oil from the reserve does not convert easily to refined product and will have minimal impact on retail gas prices.

Finally, the Strategic Petroleum Reserve is meant to be strategic. It’s not a short-term price manipulation tool; it’s meant to give the U.S. a cushion in the event of a war or natural disaster that directly affects the U.S. itself.

Biden’s release will reduce the cushion and leave the U.S. more vulnerable to a true disaster.

Biden’s release from the reserve will not affect the price at the pump, not affect the world price, and will reduce U.S. readiness. It’s a cheap and dangerous publicity stunt. Investors should act accordingly.

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