• The Strategic Petroleum Reserve has caused a great deal of volatility in oil prices recently.
• The main reason for this is the lack of clarity on when the US government will start refilling the Strategic Petroleum Reserve.
• However, in the long run, traders can count on the fact that the SPR will be replenished.
The Strategic Petroleum Reserve caused a great deal of volatility in oil prices this week. Oil prices rose on Tuesday, in part on news from the US Department of Energy, which announced that the Biden administration plans to start buying oil to refill the Strategic Petroleum Reserve at the end of this year.
According to a report by Bloomberg News, the administration will begin purchasing oil to refill strategic reserves after maintenance of storage facilities is completed.
Now concerns about the global economic slowdown keep oil prices lower as this would cause demand to drop. Large oil purchases from the US Strategic Reserve crude oil could serve as a form of demand stimulus and help prevent oil prices from slipping too much. The problem is that the US government has not been clear about when the SPR refill will begin.
And earlier in the year, the Biden administration indicated that when oil prices fell to between $67 and $72 a barrel, it would begin refilling the Strategic Petroleum Reserve. But when that window popped up, orders for oil from the US Department of Energy had not come through.
Apparently, OPEC+ thought the Biden administration was serious when it said it would start buying oil when WTI fell to between $67 and $70, and was dismayed when that demand stimulus didn’t show up. This was one of the reasons why OPEC+ decided to implement voluntary production cuts starting in May.
So can traders count on the Biden administration to follow through and start buying oil at the end of 2023?
In the long run, traders can count on the fact that the SPR will be replenished. Also, it is of strategic necessity to maintain the national oil reserves at a certain level. In fact, the United States must maintain a certain level of oil in its strategic reserves in order to maintain its membership in the International Energy Association.
However, the lack of clarity on when the US government will start refilling the Strategic Petroleum Reserve does not help traders and also contributes to price volatility.
Whereas, voters always blame the incumbent president for the high gas prices even when that president is not the cause. And if oil prices are too high, or the Biden administration fears that buying crude oil will drive up oil prices, they are unlikely to start refilling the SPR. Politically, this could cause a lot of trouble for the White House in an election year.
However, if energy prices do not cause too much financial hardship for American consumers, funds are available, and maintenance of storage facilities is completed, the Biden administration will likely begin buying oil to refill the Strategic Petroleum Reserve.
The essence of the difference is knowledge, the science of rationality. The channel is responsible for explaining the news before and after its release (fundamental and economic analysis). ?????????
https://t.me/TPFX_finance
Written by Dr. Allen R Wald
