Saturday, November 27th, 2021
Biden taps oil reserves
“Misappropriation is a major PR campaign”
The approval ratings for US President Biden are falling. At the same time, high prices at the pump are creating a bad mood in the country. Biden holds against it – and floods the oil market with strategic reserves. In an interview, RWI economic researcher Manuel Frondel explains whether this can work.
Mr. Frondel, in the United States, President Joe Biden is tapping into the strategic oil reserve to drive down fuel prices, which are at a seven-year high. Will that work?
Manuel Frondel: This actionist measure to reassure American drivers shortly before Thanksgiving will have only minor local and at most very short-term effects. The release of a total of 50 million barrels from the US oil reserve corresponds to just about half of the world’s daily consumption of crude oil. Before Corona, it was around 100 million barrels.
So it is a question of symbolic politics?
Germany holds strategic oil reserves for 90 days of full supply. To put it simply, the statutory storage obligation is based on the amount of oil and petroleum products imported into the Federal Republic of Germany in an average of 90 days. In this way, a complete failure of all imports could be compensated for for three months. The reserve requirement is fulfilled by the Petroleum Storage Association (EBV), which is subordinate to the Federal Ministry of Economics. According to the European Oil Storage Directive of 2009, all EU member states hold minimum stocks of crude oil and / or petroleum products and thus fulfill the same stockpiling obligation as the 29 IEA member countries.
A release of crisis stocks is permissible, among other things, to prevent imminent disruptions in the energy supply, to ward off a considerable and sudden drop in supplies of crude oil or petroleum products and to comply with a resolution in the IEA Board of Directors. So far, strategic oil reserves have been released three times in Germany, each based on such a resolution: The reasons were the Gulf War 1990/91, the damage caused by the hurricanes “Katrina” and “Rita” in 2005 in the USA and the failure of Libyan oil exports in 2011.
One can almost speak of a flash in the pan at this event. The misappropriation of the strategic oil reserve can therefore confidently be described as a major PR campaign that lowers gasoline prices a little at best in the short term. But consumers will have to pay dearly later if the oil reserves are replenished at high prices.
What effects can this have on oil and gas consumers in this country?
In view of the extremely small quantities that are also thrown onto the market on a global scale, the effects will practically not be felt in this country.
Wouldn’t it have made sense for Europe and Germany to participate in a concerted campaign to impress the Opec + oil cartel?
No. Germany and Europe would do well to use their oil reserves only for what they were created for: to alleviate supply bottlenecks in times of crisis. Some large importers such as China, India or Japan are taking part in the campaign.
Will that make a big difference? And what role does the International Energy Agency play?
This, too, will not be able to significantly improve the effectiveness of the measure in terms of substantial and sustainable price reductions for gasoline. Hopefully the IEA will warn that the oil reserves should only be used for the purpose for which they were created: to bridge short crises.
Do we now have to expect a backlash from the oil-producing countries, which could then also make our imports more expensive? How will OPEC counter this?
It could be that the OPEC + countries are reconsidering their monthly increase in oil supply by 400,000 barrels per day.
Where do you think oil prices will level off in 2022? The DZ-Bank, for example, expects a comfort zone of 60 to 70 dollars per barrel …
I do not want to participate in such speculation. If I had the slightest idea where oil prices will be in 2022, I would be investing a lot of money in corresponding oil price derivatives. As it is, however, I currently prefer to invest a lot of money in the energy-efficient modernization of our house roof.
Marina Zapf spoke to Manuel Frondel
The interview is at first Capital appeared.