Yesterday, someone leaked the latest plan by the Biden Administration to reduce energy prices. In short, the Administration will release another fifteen million barrels from the Strategic Petroleum Reserve. It is believed that this announcement will be made sometime on October 19, 2022.

As I pointed out in a recent article, this is a purely political move. President Biden is concerned that the heavy inflation, particularly in food and energy, currently facing the American people will cause the Democrats to lose big in the mid-term elections next month. Admittedly, his concerns are well founded as most polls have Republicans retaking the House of Representatives. The Administration has generally been hostile to the traditional energy industry and the higher prices for food and fuel are now turning the American people off from supporting his political party.

However, this is a market-oriented website, not a political one. As investors, we are concerned with how this move by the Administration will impact our portfolios. In short, the answer to this is "not very much." There are a few reasons for this. The first reason is that the planned release from the Strategic Petroleum Reserve is too small to have much impact. In 2020 (the most recent date for which data is available), the United States consumed an average of 18.19 million barrels of crude oil per day. It is important to keep in mind that 2020 had an artificially low demand for crude oil due to the lockdowns and general fears of COVID-19 that persisted long after the lockdowns ended. Thus, people were consuming much less crude oil that year than during a normal year. This is no longer the case. As we can see here, the national demand for both gasoline and diesel fuel have generally returned to pre-pandemic levels:

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Source: NuStar Energy (NS)

We can therefore assume that the actual consumption of crude oil is currently well above that 18.19 million barrel per day figure. This makes the Administration's planned release look even more minuscule as it represents much less than a single day's consumption.

The second reason that this release will not have any significant impact on the price of crude oil is that the Biden Administration is attempting to address the wrong problem. Nobody uses crude oil except for refineries. The products that are used by consumers are things such as gasoline, heating oil, diesel fuel, kerosene, and jet fuel. All of these things need to be produced in a refinery. The nation's refineries are already running at close to peak capacity:

Source: ESAI

As we can see, the United States is currently using about 94% of its total refinery capacity, which is roughly equal to the level that it has historically utilized. Thus, increasing the supply of crude oil will not work because nobody can use any more. In order to fix this problem, there would have to be more refineries constructed and I seriously doubt that any energy company is willing to make the billions of dollars worth of investment that this will require given all the rules and regulations that the government has been imposing on the industry.

There seem to be some other people in the market that realize this as crude oil prices did begin to climb in after-hours trading last night:

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