White House to Tap Oil Reserve Again Amid High Fuel Prices
Comment of the Day

October 18 2022

Commentary by Eoin Treacy

White House to Tap Oil Reserve Again Amid High Fuel Prices

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The Biden administration is moving toward a release of at least another 10 million to 15 million barrels of oil from the nation’s emergency stockpile in a bid to balance markets and keep gasoline prices from climbing further, according to people familiar with the matter.  

The move would effectively represent the tail end of a program announced in the spring to release a total of 180 million barrels of crude from the Strategic Petroleum Reserve. About 165 million barrels has been delivered or put under contract since the program was put into effect.

The Biden administration also is set this week to provide details on plans to replenish the emergency stockpile. The Energy Department announced in May it was planning a new method of buybacks to allow for a “competitive, fixed-price bid process,” with prices potentially locked in well before crude is delivered.

Eoin Treacy's view

The mid-term elections are in exactly three weeks. The incumbent party generally does not do well in the mid-terms but this year with inflation running rampant and a slim majority, the majority in both houses is at stake. Getting gasoline prices down was central to the effort to appease consumers’ inflation fears ahead of the election.

Despite almost emptying the Strategic Reserve, the national daily average price for gasoline has only fallen from $5 to $3.89 which is about where it peaked in 2008 and 2011-13. Refilling it is a nonstarter with WTI prices at $83.

Tax receipts have swollen because of capital gains taxes and will not be repeated next year. With bond yields at 4%, from 1.5% in January, the question of the sustainability of debt is going to be topical after the election.

The Dollar is still steady but that is going to change when the topic of deficits versus debt sustainability becomes topical. Rising yields in a strong Dollar environment is what we’ve had so far, there is significant scope for strife in the market if bond yields rise during a weak Dollar environment. 
The Dollar Index will need to sustain a move below the 110 area to break the medium-term uptrend.

Gold continues to hold the late September low near $1600 but probably needs the catalyst of a weaker dollar to reignite investor interest.

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