The Political Theater of Releasing 50 Million Barrels of Oil
This week, millions of Americans hit the road to find an average gas price of $3.40 per gallon. This represents close to a 75 percent spike in the cost of driving over last Thanksgiving, when travel numbers were low and the economy sluggish amidst the depths of the pandemic. The holiday has put a spotlight on gas prices as anxiety grows over an economy-wide inflationary trend that has seen the purchasing power of a dollar decline across most goods and services.
While economists debate its causes and consequences, the Biden Administration is correct to view inflation, and high gas prices especially, as a political problem as much as an economic one. On Sunday, a CBS News poll found Biden receiving the lowest public approval rating of his presidency—44 percent—with declining numbers on his handling of the economy (39 percent) and inflation in particular (33 percent).
This was the subtext to the president's Tuesday remarks announcing the decision to authorize the Department of Energy to release 50 million barrels of oil from the country’s strategic petroleum reserve.
“We always get through these [gas price] spikes, but it doesn’t mean we should just stand by idly and wait for prices to drop on their own,” Biden said. “We’re taking action [and] launching a major effort… that will span the globe and ultimately reach your corner gas station.”
But will it?
Jon Najarian, the publisher of Market Rebellion and an analyst for CNBC, believes the idea is fanciful. “It shows how little they understand about how gasoline prices work,” he says. “The release of 50 million barrels doesn’t turn into gasoline like that.”
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To the contrary, Najarian thinks it possible that the symbolic release of 50 million barrels—plus the release of another 65 million barrels from a group of Asian nations, including China, India, Japan, and South Korea—could produce the opposite effect, putting downward pressure not on prices, but on U.S. oil production. “When [producers] see an increase in oil in the market, they may wait a couple of weeks before the crank up.”
The key factor for producers, he says, will be continued growth in demand as the recovery proceeds: “That’s when [producers] start dribbling or flooding the market with oil.”
Since global daily oil consumption is 100 million barrels and rising—equal to the combined amount scheduled for release by the U.S. and others—it is difficult to avoid the conclusion that the policy is largely political theater. In this scenario, the White House understands that 50 million barrels will not impact gas prices, but is acting to shape public perceptions around its concern for bread-and-butter issues and its commitment to action. Even a slight political benefit would be better than nothing, and nothing is precisely what Washington received for its vigorous entreaties to OPEC and Russia to increase production.
The policy may represent an attempt by the White House to reach what the energy analyst Kevin Book calls “the most price-sensitive consumers in the economy.” These people, Book told the AP, “may not show up in GDP numbers or recessions, but they show up in vote counts as marginal voters, who may or may not respond in the next election cycle. I think if we get down to it, that’s really what this is about.”
Watch the full interview:
