Biden runs America’s energy security in the ground

The White House disclosed on Tuesday evening his project to release 15 million barrels of crude oil from the Strategic Petroleum Reserve for delivery in December, as the final tranche of the 180 million barrel emergency release the Biden administration announced in March.

Also this week, President Biden said there would be “consequences” of Saudi Arabia’s decision as an OPEC+ member to cut oil production in response to market conditions, which is the official OPEC+ motive for this decision.

One of the possible “consequences” would be new limits on arms sales to the Kingdom, as suggested by Democratic lawmakers. Another, according to a CNB report from Tuesday, is to discourage American companies from expanding their commercial relations with Saudi Arabia.

Meanwhile, U.S. oil production continues to grow slowly, in part due to various challenges facing drillers, including the widespread effects of inflation, a shortage of labor and equipment, and ongoing problems. of supply chain.

The picture is not bright for US energy security. In fact, one could argue that the actions of the Biden administration so far this year have compromised that security and continue to undermine it.

The unprecedented release of the Strategic Petroleum Reserve has reduced the United States’ emergency crude oil supply to the lowest level since 1985, at less than 445 million barrelsof 612 million barrels before the start of the release program.

This is not very good news for a country that consumes almost 20 millions barrels of oil per day. The reason this is not good news is that 445 million barrels of oil means the US only has enough in its strategic reserve for about 22 days in case of a real emergency. Many analysts – and some legislators — called on the White House to stop using the SPR for purposes it was not meant to be used for. Yet, as we approach the halfway point, it would be hard for any administration to ignore fuel prices and the fact that after a substantial drop over the summer, thanks in large part to the release of the SPR , they go up.

Related: Biden plans to fill SPR when oil prices fall below $72

Some have argued that the SPR is outdated because the United States is the world’s largest oil producer and a net exporter. But as Robert Rapier pointed out in this Forbes article, on top of all that, the United States is also one of the biggest importers of rough. Any disruption in imports would have a devastating effect on US oil prices were it not for the cushion that the SPR provides by simply existing.

Speaking of imports, Saudi Arabia is one of the main suppliers of crude oil to the United States. Interestingly, as of last year, it was the fourth largest supplier of oil to the United States after Canada, Mexico and Russia. Now that Russian oil has been banned, the Saudis have slipped to third place, with the latest EIA Data showing daily imports of some 541,000 barrels.

After the ban on Russian oil – and refined products – fuel prices in the United States skyrocketed, and it took months, luck and more than 100 million barrels of SPR oil to bring them down . If the diplomatic escalation with the Saudis continues, the Kingdom’s oil exports could be affected at the worst possible time for the Biden administration.

The latest signals from both sides are not really promising. Biden has taken over the SPR, senators call for punishing the Saudis, and a Saudi prince and distant relative of the Kingdom’s de facto ruler, Crown Prince Mohammed, has just threatens Washington with a jihad.

Now, more information about the roots of the divide is also emerging, and the outlook becomes even more daunting. CNBC reported this week that the White House had asked the Saudis to delay its decision to cut production for a month. The information comes from an official statement by the Saudis defending the decision to cut production.

Allegations of OPEC+ and other coercion made by Pentagon press secretary John Kirby have not helped clear the air between Washington and Riyadh. Shortly after the claims, a number of OPEC members precipitate state the OPEC+ decision was unanimous and no one was coerced.

Exhaustion of the SPR, increasing diplomatic rupture with its third oil supplier and challenges for the growth of local production: the picture is not very pretty. Meanwhile, White House press secretary Karine Jean Pierre said At yesterday’s press conference, US oil production is on track for a record high this year, so maybe it’s not all bleak.

What’s actually grim is the lack of many options on Biden’s table to deal with gas prices. American refineries need imported oil to operate. Attempts to diversify supply by easing relations with Venezuela have so far failed. The deal with Iran seems to have stalled again. And Canada and Mexico can’t export enough, judging by the latest U.S. oil import numbers.

The SPR version cannot continue indefinitely. In fact, the reserve will soon have to start being replenished, but the White House has said it will wait for prices to fall to between $67 and $72 a barrel. This may take some time given the upcoming EU embargo on Russian oil which will come into force on December 5th and affect also non-European importers of the goods.

In short, the Biden administration is not well placed to ensure the country’s energy security. And whether or not U.S. oil production hits a record high or grows moderately as industry executives expect will be more or less irrelevant in the current supply security environment. After all, OPEC could always cut production further and earn more from higher prices.

By Irina Slav for Oilprice.com

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