Thanks to Senate Democrats like Charles Schumer (D-NY), America lost billions of dollars by not refilling or expanding its strategic petroleum reserve in 2020 when oil was dirt cheap. Now, oil is more expensive, over $80 per barrel, and Schumer wants to empty the reserve of what oil is in it, just to slow the price rise. But there is too little in the reserve to have much effect on oil prices, and oil prices could be even higher — as high as $120 — next year, making it dumb to sell oil now.
In mid-2020, oil prices actually briefly went negative, to minus $37, due to production exceeding needs and capacity. Oil prices were below $30 per barrel for months. President Trump proposed adding oil to the strategic petroleum reserve when oil cost little or nothing, but Schumer and Senate Democrats vetoed it.
Not buying the oil cost the US government billions of dollars because oil’s price is now over $80 per barrel, at least $50 more than it would have cost. If America had expanded the reserve’s capacity, and bought billions of barrels of oil for $30 or less back in 2020, it could sell those billions of barrels now for a $50 per barrel profit, making tens of billions of dollars. A basic rule of investing is to buy low and sell high.
But the oil reserve is not full, and it makes no sense to sell what’s in it now. What would happen if a war broke out in oil-producing regions, and the world developed a big shortfall in oil, right after the U.S. emptied its reserves?
Moreover, at $80 per barrel, oil is still at less than half its 2008 peak. In 2008, oil reached $140 per barrel, which would be about $180 today, after adjusting for inflation. So although oil prices are somewhat high, there is no emergency requiring that the U.S. sell the modest amount of oil it has.
Yet, Bloomberg News reports that on November 14,
Senate Majority Leader Charles Schumer urged President Joe Biden to tap the U.S. government’s reserves of emergency fuel to help lower gasoline prices.
“Consumers need immediate relief at the gas pump, and so I am urging the administration to approve fuel sales from the nation’s Strategic Petroleum Reserve,” Schumer, a Democrat who is New York’s senior senator, said at a news conference Sunday.
“The president has made clear that all options are on the table,” Brian Deese, director of the White House National Economic Council, said on CNN. “We’re monitoring the situation very carefully.”
Gasoline prices at a seven-year high, along with surging costs for shelter, food and vehicles, have contributed to a spike in inflation. The consumer price index increased 6.2% in the 12 months through October, the fastest annual pace since 1990, according to Labor Department data released last week.
Back in 2020, Senate Democrats forced Trump to remove an authorization to expand the strategic petroleum reserve from the coronavirus relief bill, and boasted about it. As I noted at the time, “Their obstruction will likely cost America billions of dollars in lost profits.”
The idea of refilling the strategic petroleum reserve was vetoed by Schumer, who called it a “bailout for Big Oil.” No, it wasn’t not a bailout. It is common sense to buy commodities like oil when their price is low, so that you have them in reserve for later, when their price rises.