Last week, President Biden announced further drawdowns from the Strategic Petroleum Reserve (SPR). While the President claimed that the decision was “not politically motivated at all,” members of the media and current and former legislators were quick to draw connections between the move and the looming midterm elections. According to industry statements and data, the SPR drawdown and the newly announced SPR replenishment plan risk compromising energy security while providing very little long-term impact on fuel prices for consumers.
Industry Reacts to Strategic Petroleum Reserve Drawdown
The Independent Petroleum Association of America issued a statement in opposition to the White House’s announcement calling on the Department of Energy (DOE) to release another 15 million barrels of oil from the SPR. The President’s announcement was a continuation of President Biden’s “historic 180-million-barrel drawdown” decision this past March.
As Energy in Depth has previously pointed out, depletion of the country’s crude oil stockpile for non-emergency purposes is not a long-term strategy that has proven to be an ineffective tool, as was explained further by IPAA President and CEO Jeff Eshelman:
“The SPR is America’s first line of defense against a major disruption in domestic petroleum supplies. Releasing more oil from the SPR is a short-term fix for prices at best. It not only reduces our capacity to protect ourselves in case of a true emergency in the future, but also increases America’s reliance on the politically volatile countries that currently provide most of our oil.
“Drilling for more oil and natural gas at home will not only increase American energy supply, but will also create jobs and increase government revenues through taxes and royalties. Releasing oil from our strategic reserves cannot accomplish these other important goals.”
Eshelman’s sentiments were echoed by American Petroleum Institute President and CEO Mike Sommers:
“Increasing energy demand and constrained supply coupled with geopolitical instability and faulty policy decisions have driven fuel prices higher. At a time when American energy can be a stabilizing force at home and abroad, we urge caution in continuing to rely on short-term efforts that are no substitute for sound long-term policies that enable American energy leadership.”
Continued Mixed Messages From the Administration
On top of announcing continued misuse of the SPR, President Biden also doubled down on the unfounded claim that energy companies are intentionally increasing the price of fuel for consumers. The President told energy companies that they “should not be using [their] profits to buy back stock or for dividends,” saying:
“You should use those record-breaking profits to increase production and refining. Invest in America for the American people. Bring down the price you charge at the pump to reflect what you pay for the product.”
EID has pointed out time and time again that there is no evidence to support claims of gasoline price gouging. Experts ranging from former White House advisers to Federal Reserve Bank economists have uniformly pushed back on allegations that energy companies are intentionally selling gasoline to consumers at high prices to generate even greater profits. Instead, prices are set by the global market, where supply chain challenges and demand fluctuations have large impacts. And ironically, the President’s calls to increase production run counter to nearly two years of stalled onshore and offshore leasing, uncertainty in policy, and overall hostile rhetoric toward the industry.
To address these inhibitors to increased production, and to refill the now-replenished SPR at the same time, the President announced a plan to buy oil for the SPR when prices fall to $70 a barrel – a far cry from where oil prices have been sitting for the last six months:
“I’ve heard from oil companies that they’re worried that investing in additional oil production today will – in case demand goes down in the future, and they’re not going to be able to sell their oil products at a competitive price later.
“Well, we have a solution for that. Today, I’m announcing a plan to refill the strategic Petroleum Reserve in the years ahead at a profit for taxpayers. The United States government is going to purchase oil to refill the Strategic Petroleum Reserve when prices fall to $70 a barrel.”
However, the industry generally regarded the SPR refill plan as too little, too late. According to reporting from Reuters, a poll of energy company leaders conducted by shale oil entrepreneur Matt Gallagher showed that President Biden’s plan to replenish the SPR is not enough to give companies the incentive to significantly increase production:
“The result: nearly 80 percent of respondents said they did not expect oil futures next year will fall to a level that would trigger any U.S. purchases – negating any boost from what analysts called the ‘U.S. put,’ or using proposed Strategic Petroleum Reserve buys to set a minimum price for new oil production.”
Bottom Line: The Biden administration continues to misuse the SPR while falsely placing blame on the oil and natural gas industry. Data like the Dallas Federal Reserve energy survey show that it is not a mystery why oil and natural gas companies are lacking in the confidence and capacities needed to significantly increase domestic production. The administration’s ongoing mixed messages and unfounded allegations directed towards the industry do not help energy companies address energy needs in the United States or overseas.
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