A 21st century United States President may have made the best trade of 2022.
Maybe the best trade ever.
No, this trade wasn’t made by a certain New York real estate mogul and instead by a President from Scranton, Penn.
That’s right Joe Biden actually pulled off a phenomenal deal, maybe not the actual best ever (that still might go to the Cowboys getting three first round picks and three second rounders from the Vikings for a future failed U.S. senate candidate) but is still pretty great.
Get to the Point Already, What is this Deal?
Crude oil, and gas prices surged earlier in the year due in large part to Russia’s invasion of Ukraine and the resulting sanctions against its oil from various countries. As a result, the United States government decided to release 180 million barrels of crude oil from its Strategic Petroleum Reserve starting in March to try to push those prices back down. Oil prices have since come way back down to where they were at the start of the year due in part to the SPR releases as OPEC+ actually cut output by 2 million barrels a day back in October.
The release of reserves certainly helped the American people in some ways but the big win comes from the massive difference in oil prices from when the releases started and current prices. The average price point at which the reserves were sold is unknown but the peak of crude hit $124 a barrel back in March and averaged $96 during the SPR release period. WTI crude oil now sits at around $76 a barrel.
Now that's a $20 difference per barrel from the average price to the current price. The SPR could have released a majority of its reserves at a higher price than $96 or something lower, but either way it's a pretty sizable difference from today’s prices. $20 might not sound that sizable at first but times that by 180 million barrels and you have a $3.6 billion profit if the U.S. were to buy back its reserves at current prices.
Oh, So the Deal Isn’t Even Done Yet?
Yes these are just unrealized gains at the moment or “paper profits”. However, the U.S. is looking to start refilling its reserves with the Department of Energy even putting in a request to acquire 3 million barrels back on December 16. Refilling reserves will put upward momentum on oil prices but they still have about 380 million barrels in reserve as there’s not a massive rush to refill the 180 million that was released.
In fact, there’s still a very real possibility that prices continue to fall and that $3.6 billion profit could actually grow larger. That’s of course a big if, but either way the decision to release barrels has certainly been a win so far for the administration. It helped consumers pay lower prices prices at the pump and seems like a big win for the Treasury and by extension, the U.S. taxpayer.
Yes, there are certainly things to complain about with the Joe Biden Administration, but this oil deal is a solid win for the country as a whole.
