There is speculation that the White House may soon announce a plan to contain sky-high energy prices, which could include developing the US strategic oil reserve [SPR]. Reports circulated this week, President Biden has asked other countries, including Japan and China, to do so.
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Now Biden and his team need an economics lesson. Trying to use the SPR as a weapon will backfire as it only serves to artificially lower prices, which increases demand and makes supply scarcer in the long run.
Second, it will discourage production in the new oil fields, creating even greater shortages in the future. It will also give OPEC more power because the amount of oil remaining in the global strategic oil reserve will be less.
LESS AMERICANS WILL NOT TAKE THE STREETS TO GRATE THE GAS PRICE
Since its inception, the International Energy Agency (IEA) has intervened three times in the oil markets by releasing oil stocks. The first time was in 1991 during the Gulf War; the next in 2005, a month after Hurricane Katrina impacted US production by releasing 2 million barrels a day; and finally in 2011 to make up for a prolonged disruption in oil supplies as a result of the Libyan civil war.
Each time the IEA had a real reason to step into the market, and it wasn’t price action.
So in the long run, we will find that this plan will make us more dependent on OPEC in the future, unless the Biden administration plans to reverse course and allow US producers to produce more oil.
The problem in the market is not scarce because the cartel is not producing enough oil – there is a problem in the market because US oil production has been foiled by the Biden government, which is preventing US oil producers from getting enough oil to produce at once when the demand for oil increases. You have advised against investing in fossil fuels.
The irony of these potential fixes is that Biden is enforcing strict regulations on methane emissions from oil and gas exploration. This sends mixed messages not just to US energy producers, but to the world.
A conflicting energy policy will neither advance his green energy agenda nor help lower energy prices at home.
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Phil Flynn is a Senior Energy Analyst at The PRICE Futures Group and an employee of the Fox Business Network. He is one of the world’s leading market analysts and provides retail investors, professional traders and institutions with up-to-date insights into the investment and risk management of the global oil, gasoline and energy markets. His precise and timely forecasts are in high demand by industry and the media around the world, and his impressive career spans nearly three decades, drawing attention with his market views and energetic personality as the author of The Energy Report. You can call Phil at (888) 264-5665 or email at [email protected].