A Strategic Blunder?

is it oil's time to now run higher?

The Biden administration has been threatening the oil market in an attempt to talk down the high prices that consumers are paying at the pump. They began deploying what looks like their standard operating procedure. The first step is talking a big game in the press. This was achieved when rumors started to fly of a Strategic Petroleum Reserve draw-down. Jennifer Granholm, the Energy Secretary told the press that Biden was

“certainly looking at what options he has in the limited range of tools a president might have to address the cost of gasoline at the pump, because it is a global market.”

They also began to make threats. They threatened OPEC to increase their production rates, twice. When this failed, the administration tried to coordinate with the Chinese on a coordinated release of both country’s Strategic Petroleum Reserves (SPR). This happened when Biden had his virtual meeting with President Xi. The South China Morning Post interviewed Wang Yongzhong about the exchange.

Wang Yongzhong, a senior energy researcher with the Chinese Academy of Social Sciences, a Beijing-based governmental think tank, said that the current crude price of around US$80 per barrel does not necessitate China’s immediate release of strategic reserves.

“From a technical perspective, it’s not the time for China to do so. But the US indeed has the motivation because of its high inflation, ” he said. “However, both countries, as big consumers, have shared common interests in curbing crude prices.”

China knows that the US is struggling with high inflation. They’ve even blamed the US for “importing inflation” into China. They are also not motivated to help the US.

In light of this, the Biden administration has doubled down on their threats. This time they are targeting domestic producers. This morning the Biden administration sent a letter to the FTC Chair, Lina Khan, to address the “mounting evidence of anti-consumer behavior by oil and gas companies”. The administration believes that the price of oil and the price of gas are not tracking as they should. They believe that “the largest oil and gas companies in America are generating significant profits off higher energy prices.” I have bad news for the administration, this is nothing new.

There are always divergent times in the relationship with gas and crude prices. Given time they will re-converge on their own. This is another poor attempt to do something to fix a government created problem.

This administration is showing itself to be all bark and no bite. Apparently they didn’t learn the lesson to speak softly and carry a big stick.

Now we know why they’ve been lashing out at everyone else. They’ve been drawing down the Strategic Petroleum Reserve without announcing it.

Whoops. The cat is out of the bag!

The administration’s feeble attempts at reducing the price at the pump have accomplished nothing. I fully anticipate that they will continue to lash out at productive companies without taking time for self-reflection. There are ways to succeed in reducing the price of oil domestically. By shutting down pipelines, suspending oil & gas leases on federal land, and raising taxes, the administration is hell-bent on achieving the opposite.

The administration has become increasingly unstable in their rhetoric. It is too difficult to determine who they may target. This means the best way to play this is on the price of oil or gas itself. USO and UGA are two exchange traded products that fit the bill.