White House announcements come and go, as new ones rise to the surface and as the news cycle moves on. Old news is, well, old, and how often is it as a matter of actual practice that the journalists look back to examine the degree to which confident assertions by policymakers have come to pass? Not very, an eternal truth that applies in spades to the Biden announcement on March 31 that over the next six months 1 million barrels per day of crude oil will be released from the Strategic Petroleum Reserve.
As I argued at the time: This policy pronouncement is wholly ad hoc, a predictable response to the adverse political effects—sharply higher fuel costs—of the utterly incoherent Biden policy toward investment in fossil fuel reserves and infrastructure, combining increasingly stringent formal, informal, direct, and indirect constraints on such investment combined with vociferous exhortations to oil producers both foreign and domestic to produce more in the here and now, accompanied with no small amount of demagoguery.
Because the use of crude oil and natural gas is substitutable over time—reserves and stockpiles can be used more intensively now and less later, or vice versa—the market response to the announcement obviously would be to reallocate oil production over time (less now, more later) so as to reestablish the standard market equilibrium in which at any given moment the expected price rises over time at the market rate of interest.
Well, that did not take long. Brent crude oil on March 31 was at $112.25 per barrel. After the announcement, it fell to $102.55 on April 1, rising—April Fools!—to $109.37 on April 4, and then down to $106.16 as of the morning of April 6. The respective numbers for West Texas Intermediate: $99.70, $99.27, $104.92, and $101.09.
And so the Big Announcement from the White House has been accompanied by a decline in Brent prices of about 5 percent (which is what I predicted as a maximum), or around 12 cents per gallon of gasoline, while the price of WTI actually has increased. Obviously international oil prices are affected by a myriad of parameters, some very subtle: shifting demand and supply conditions, expectations attendant upon the outlook for the Russian war on Ukraine and the longer-term international sales of Russian crude oil, future production decisions by OPEC+, shifts in interest rates and the exchange value of the dollar, the prospective evolution of policies toward fossil fuels in the US, Europe, and Asia, ad infinitum.
It is difficult to believe that none of the economists in the White House or the Executive Office of the President told the president and/or his closest advisers these simple truths. The administration at the highest levels obviously preferred a Big Announcement virtually irrelevant in terms of the policy headache—high fuel costs—that the administration has inflicted upon itself and upon Americans generally. That a reexamination of its basic assumptions and policy initiatives, again obviously, is anathema to this administration does not bode well for the evolution of the Biden policies on energy and much else.
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