At the end of a busy day, a few thoughts on today’s SPR release: 🧵 #OOTT
Effectiveness should be measured not by price response today but what it would have been absent the “verbal intervention” of the past few weeks. Expectations of a release contributed (tho not entirely responsible) to drop of $8/b since Oct & helped stem price run up.
It’s notable because it is not an emergency response to a severe supply disruption, as required for a major sale, but (as an exchange) an effort to tame higher oil price expectations amidst deep concerns about inflation.
At a time when the economic recovery from a historic pandemic has led to disruptions and lags in supply chains, investment etc, incl for energy sector, administration comments suggest a rationale of using SPR to help smooth the path back to normalcy & shave peaks in pump prices.
The risk for admin is projections of markets loosening next year prove too optimistic. If markets are tight and/or there are unexpected supply disruptions, few tools remain to curb high prices (and OPEC+ may have little spare capacity left by then).
Another risk is OPEC+ responds by slowing its plan to put more oil on the market, just offsetting the impact. Not at all clear all OPEC+ members would support holding back supply, however, and that would risk putting a target on OPEC+ (e.g., Congressional interest in NOPEC).
Notable that this was not done through the IEA, but with China, India etc. IEA was created as an agreement among consumer countries to hold strategic oil stocks. Today’s big consumers are not those of the 1970s, however, so need different partners.
There may be potentially significant geopolitical implications if oil market dynamics become a new area of cooperation/coordination between US and China, in particular.
Re climate, it’s not inconsistent to ensure affordable & reliable energy supplies for consumers today while also taking historically unprecedented actions to accelerate a clean energy transition in the future. The world we have today & want in the future are two different things.
As I’ve testified & written many times, prices at pump are set in a global market & consumers remain vulnerable to global shocks regardless of how much or little we import. energypolicy.columbia.edu/sites/default/…
That’s why it’s foolish to sell off SPR and why the best way to protect the economy and consumers from inevitable shocks and volatility in oil market, not to mention curb climate change, is to reduce how much oil we use in the first place. energy.senate.gov/services/files…
The path to net-zero is going to be messy, unpredictable, disruptive, & volatile. We need more, not fewer, tools to manage volatility and smooth the transition, not just to avoid economic harm but avoid undermining political support for climate ambition. foreignpolicy.com/2021/09/24/ene…
Most importantly, have a Happy Thanksgiving everyone!
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