According to AAA, the average price for a gallon of gasoline in the USA is $3.70.
This is an astounding 101% increase from its low of $1.84 per gallon a little over two-and-a-half years ago. One driver for the increase in prices at the pump — which peaked at $4.92 per gallon in June of this year — can be explained by any Econ 101 student. It has to do with the basic formula of supply and demand.
In this case, however, it isn’t so much the supply of crude oil, from which gasoline and other fuels are distilled. Rather, it is the supply of money — more precisely U.S. dollars. As crude oil is priced in these same U.S. dollars, the more units there are in circulation, the more each barrel (bbl) will cost as the value of the currency for which it is exchanged is diminished through oversupply.
Pretty straight-forward right?
Therefore, one would think a powerful way to combat the high cost of crude oil, and thus ease the hit to the consumer at the pump, would be to not print any more of those devalued dollars. And yet, in classic 1970s style, the Democrats are doing just the opposite.
Although the rise in energy costs from the depths of the pandemic cannot be laid solely at Biden’s feet, his administration’s $780 billion Inflation Reduction Act (an Orwellian name if there ever was one) has ensured we will see high prices for the foreseeable future. How? By printing ever more dollars to fund its smorgasbord of spending money we don’t have.
The current administration seems to believe that ideological verve, and hand-outs to their green lobby, can overcome basic mathematics. It can’t. As such, the American consumer has been hammered by the highest inflation in forty years, and with little signs of let-up.
Furthermore, as the ominous warning from Westeros tells us, “winter is coming.” Should the season be harsh, it will come with some of the highest home energy bills this generation of consumers has ever faced.
So the Biden administration finds itself in a trap of its own making, just one month before the midterms. If the polls are to be believed — and the elections are free and fair — the Democrats face a tsunami of voter backlash as they bear the costs of profligate spending and energy policies hostile to maintaining U.S. energy independence.
So what is the Biden administration’s solution to higher energy prices? They seem to be trying a bit of Econ 101 of their own by increasing the supply of oil on the market through the depletion of the Strategic Petroleum Reserve (SPR). The White House announced that the Department of Energy is authorized to sell another 15 million barrels of oil from the SPR, offering that: “This sale will complete the historic, 180-million-barrel drawdown the President announced in the spring, which has helped to stabilize crude oil markets and reduce prices at the pump.”
What the proclamation leaves out is this unprecedented withdrawal will leave the SPR at its lowest level since July 1984! But not to worry, the White House continues, because Biden’s people plan on refilling the dwindling supplies as soon as crude oil prices dip below $72/bbl.
As of this writing, front month WTI crude futures — the global benchmark — are trading at $85.50/bbl. In fact, sub-$72 levels in the WTI cash market have not been seen since mid-December 2021 and indications are that we won’t be seeing these levels anytime soon … especially given that OPEC+ intends to reduce output, the pleas of a fist-bumping U.S. President aside.
No doubt, should crude prices dip below the $72/bbl level and the administration does, in fact, pull the trigger and begin scooping up product to replenish the drastically depleted SPR, the Democrats will hail this as a great victory for Biden’s market timing, etc.
This, of course, assumes the green snake that slithers through the halls of the Democrat-controlled Congress doesn’t bite its benefactors and thwart what it sees as a submission to a fossil fuels-based domestic energy policy. And if they did try, certainly the Democrats would hold fast and put the interests of national security and the average U.S. consumer above those who hold equity stakes in solar panel makers, electric car companies, and wind farms. Right? Not necessarily.
Set the way-back machine to March 2020 when Donald Trump sat in Biden’s chair. The Donald certainly has many faults, but lacking a keen sense of timing in the oil market apparently isn’t one of them. Back then, when oil was trading not at $72/bbl but rather below $25/bbl, Trump proposed taking advantage of the low prices due to the global shutdowns by restocking the SPR with some 77 million barrels.
Such an action would have effectively topped off the emergency supply, thereby placing us in a better position to weather any inevitable unknowns that could lead to an energy crisis down the road — and at a bargain. A great deal for the American people.
In fact, by April of that year the price of oil fell to as low as $13.56/bbl. Trump basically had correctly picked the absolute bottom of the market.
“If you believe in the purpose of the SPR, now is the perfect time to make sure it’s full,” said then Energy Secretary Dan Brouillette. Very true. And certainly the Democrats, being smarter than Trump or any “MAGA Republican” (just ask Robert Reich et. al.) would have jumped at the opportunity presented by this one silver lining amidst the dark cloud of the economically disastrous global response to the COVID pandemic.
Guess again. Senate Democrats, prostrating themselves before their green overlords, killed the Trump administration’s proposal by cutting this modest provision out of the massive stimulus bill worming its way through Congress. Sen. Chuck Schumer (D-NY) proudly took responsibility for derailing what his environmental puppeteers ludicrously labeled a “$3 billion bailout for big oil.” This, during a time when the Democrat-controlled House down the hall was endorsing trillion-dollar stimulus checks. As such, politics and an almost fetishist green ideology superseded not just the vital national interest, but common sense. And it prevented the U.S from making a great trade.
So here we now sit, like nervous traders caught in a bad position and staring at a screen, waiting not for a $25 print in crude oil but rather $72 that may or may not come in the near future.
I remember an old comic strip in which a broke investor sitting in an alley on skid row, complains to a sleeping bum next to him, “Buy high, sell low…rode that idea right into the toilet!”
Only in the upside down world of the Biden DOE would that seem like a sound plan. By doing nothing when Trump’s DOE was ready to start buying, the Democrats ensured that we’d enter into the phase of skyrocketing prices at the pump, along with Russian tanks rolling over European energy lifelines in Ukraine, with the SPR unfilled.
And now, as he contemplates grim polling data coming into the 2022 midterms, a desperate Joe Biden is showing he cares far more about preserving his party’s hold on power than he does the security interests of the nation he ostensibly leads by draining the SPR even more.
Biden is playing King Canute by trying to stem the tide of inflationary pressures so as to mute the impacts of poor economic stewardship that finds Americans growing more furious with each fill-up eating away at their incomes less than one month before going to the polls.
And what effect can such an irresponsible depletion really have on the long-term price of gasoline? Once again, that pesky non-partisan mathematics provides the answer. Well, it has been a little over 205 days since the Biden Administration opened up the SPR spigot, draining 180 million barrels. That translates to a little over 882,000 barrels per day injected into the nation’s oil market.
That seems impressive until you consider that on average the U.S. burns just under 19.9 million bbls/day. So for all this strategic risk placed upon the altar of political expediency, the Biden administration has added a whopping 4% to the total supply of oil available. Have prices come down some? Certainly. The average price of a gallon of gas has fallen from $4.32/gal to $3.70/gal from the time the SPR was first deployed until today. A 23% decline. But there are no solutions in life, just trade-offs.
At what cost have Americans saved roughly $7.50 per fill-up, or one Chick-fil-A nugget combo? How vulnerable has the nation become to “unknown unknowns,” as Donald Rumsfeld once said, in the form of unforeseen, even unimaginable, energy shocks far more severe than today’s down the road? We have no idea. And certainly the Biden people have no clue. When you have an Energy Secretary who cannot even tell a reporter the daily U.S. consumption of crude oil, I think that speaks volumes.
In the meantime, we have the lowest reserve of emergency energy supply in four decades. And in return we have a retracement to $3.70/gal at the pump — which is still double what it was just 31 months ago — that is somehow seen as a victory in Democrat circles. And this assumes that the SPR withdrawals and not recession pressures are to be credited for even this still-inflated price point.
After all, as we say in trading, the best cure for high prices is high prices.
Brad Schaeffer is a commodities trader, columnist, and author of the best-selling novel The Extraordinary, which deals with autism and PTSD and the critically acclaimed World War II novel, Of Another Time And Place.
The views expressed in this piece are those of the author and do not necessarily represent those of The Daily Wire.