Much to my surprise, China has come out in support of a coordinated Strategic Petroleum Reserve release. They must have realized that they are getting a good deal with Biden as president and they want to keep it that way. In order to do that, they’ll need to get the American people on their side too. One way to do that is lower prices at the pump.
A Reuters piece this morning goes over the details. The best comment that Reuters could get was from the National Food and Strategic Reserves Administration from China.
"We are carrying out the work of releasing crude oil reserves. And for any details related to the releasing, we will put out a statement on our website."
China keeps its reserve level a state secret. The last public update was in 2019. At that time they had enough reserves to last 80 days. That is equal to roughly 1.2 billion barrels of crude oil. In comparison, the US has roughly 600 thousand barrels left in their reserve.
While a release from the US’s reserve is a drop in the bucket, a release from China could move the market. The problem for China is two-fold. If they release enough to move the market, it will only be a temporary relief. It will also signal to OPEC to stay the course on production. In addition, China imports approximately 10 million barrels per day. This puts China in a difficult situation. Once released, China will be hard-pressed to replenish their reserves at a lower price.
I don’t believe a draw-down will be an effective measure to curb prices at the pump. JP Morgan and Goldman Sachs agree with me. This would be a temporary band-aid at best. It does not solve the structural problems that the Biden administration has created. It does not stop the Fed from continuing to add to the money supply, creating inflation. Doing a coordinated draw-down will only lead to higher prices once the draw-downs end. At that point, both the US and China will want to replenish their reserves and will become buyers in the market, leading to higher prices.
This is a dangerous game. The administration is looking more and more unhinged with reality. Politicians never plan for the future. They only care about the here-and-now and their next re-election campaign. This will lead to perilous outcomes. I’m beginning to believe we could see 1970’s style price controls come next.
Today was the weekly release for the unemployment figures. Amazingly, we have added to the doles. Pandemic Unemployment Assistance shot up by over 500k. Initial claims and continued claims both sustained their downtrends with initial claims down 18k NSA and continued claims down almost 200k NSA.
I don’t have an explanation for the odd jump in pandemic assistance. If you’ve got an idea, share it in the comments. In reality, no one should still be on the pandemic assistance since we are past the termination date of September 6th. Temporary government programs have a funny way of sticking around.