President Biden set to release 1 million barrels of oil per day … how much it might help drivers … questions about Russia’s oil capacity … a special event with Louis Navellier next Tuesday

The scale of this release is unprecedented: the world has never had a release of oil reserves at this 1 million per day rate for this length of time.

That’s from the White House’s fact sheet on yesterday’s news that the U.S. will release one million barrels of oil per day from strategic reserves for the next 180 days. The goal is lower gas prices.

So, will it help?

Well, there’s no clean calculation we can make that will produce a 100% accurate answer. The relationship between oil supply and gasoline prices is complicated, influenced by countless variables.

That said, let’s do an overly simplistic, back-of-the-napkin calculation just to get a ballpark sense of what this news means.

According to the Library of Congress, the U.S. consumes an average of 20.6 million barrels of oil a day.

From a strictly mathematical perspective, those one million extra barrels per day represent 4.85% of our current consumption.

According to AAA, the average national gas price is $4.225. Let’s assume this extra one million barrels per day reduces prices at the pump by the same 4.85% it represents of daily consumption.

At a national average of $4.225 per gallon, that’s means you might pay about $0.20 less. So, about $4.02 per gallon.

As you can see below, that’s still basically the highest price on record dating back to 1990.

***For a bit more perspective, let’s circle back to this past November

That’s when the Biden Administration released 50 million barrels from the strategic reserve.

Keep in mind, at the time, those 50 million barrels represented the single largest release from the Strategic Petroleum Reserve ever.

In fact, that release was almost twice as much as the largest previous release, and accounted for roughly 8% of the total reserve.

From WCNC:

The Biden administration has tapped into the reserves before. On Nov. 23, they released 50 million barrels from the strategic reserve.

According to the U.S. Energy Information Administration, the average price of gas dropped by 2 cents in the following days. By Dec. 6, it only dropped another 3 cents. 

“It was so quick,” (Director of Operations for Pecos Country Operating) Rey Trevino said. “They did drop, but then they went right back up.”

Trevino believes the same thing will happen this time.

He says tapping the reserve may put a small dent in gas prices, but not enough to justify using a stockpile that’s meant for emergencies. 

Goldman Sachs believes any lower prices we’ll see this time around will be similarly unsustainable. That’s because they’re not treating the core problem, which is a structural supply issue.

From the Goldman commodities research note:

This would remain, however, a release of oil inventories, not a persistent source of supply for coming years.

Such a release would therefore not resolve the structural supply deficit, years in the making.

***For drivers who are frustrated at the pump, a more meaningful decline is likely to come from reduced demand out of China

We just saw that the U.S. consumes 20.6 million barrels of oil a day.

China consumes the second largest amount at 13.1 million barrels of oil a day.

Roughly 4% of that comes from Shanghai alone.

Well, Shanghai has just shut down.

From Foreign Policy:

After weeks of partial closures, Shanghai now faces full lockdown—in two parts.

Each side of the city, which is divided by the Huangpu River, will undergo five days of near-total lockdown; the eastern district of Pudong started Monday, while Puxi’s lockdown begins Friday.

Many of its residents have already seen days or weeks of lockdown after cases were detected in their residential compounds, where most urban Chinese live.

Rystad Energy estimates that oil demand could be reduced by as much as 200,000 barrels a day for each day these restrictions in Shanghai remain.

And keep in mind, that’s just Shanghai alone. Many other areas of China are currently under lockdown, and have been for weeks.

The combined reduction in demand of all these lockdowns is more likely to impact prices than the increase in domestic supply from the strategic reserve. Of course, it’s unknown how long these lockdowns will last.

***Looking bigger picture, the real variable impacting oil prices is Russia

As we stand today, there are a huge number of unknowns at play.

From Commodity Context:

How widespread is the self-sanctioning amongst Western firms, and how long does it continue? Can prices fall low enough to negate that self-sanctioning aversion?

Would firms reestablish trade or partnerships even if the West brokered a deal with Moscow and removed sanctions? Will that self-sanctioning block all the crude going to western Europe, or just some of it?

Of the blocked formerly westward-bound barrels, how many will or even can move toward less discerning—or at least more economically desperate amidst this ongoing energy price shock—markets in Asia? …

And that’s just over the next 6 months. Beyond how this situation evolves in 2022, there’s the very serious question about the longer-term prospects for Russian production as its ostracism from the global community ossifies.

Beyond the potentially long-lasting loss of its traditional export customers, Russia’s oil industry has also been severed from much of the global capital market and lost access to many of the key sources of oilfield expertise, from ties cut with former joint-ventures (Shell, Exxon, etc.) and equity stakes (BP) to the withdrawal of major oilfield services companies.

It’s going to be immensely difficult, if not impossible, for Russian petroleum engineers to prevent a collapse in crude production, let alone grow output anytime soon.

We continue to believe the oil trade has more gains in it. It won’t be a smooth ride north, but the influences that have been pushing prices higher don’t appear to be going away anytime soon.

***Stepping back, sustained higher oil prices increase the chances that the U.S. economy enters a period of stagflation

While that doesn’t bode well for the health of the U.S. consumer, or the average stock, it doesn’t mean savvy investors can’t find a silver lining.

On this note, let’s turn to legendary investor Louis Navellier:

While many of the talking heads on financial networks have never experienced stagflation, I was finishing up my MBA in 1979. So, I remember the 1970s and stagflation very well.

What I can tell you from this experience is that a stagflation environment is an ideal environment for stock investing if you invest in stocks that are prospering from inflation and have pricing power.

Let me be clear: The only way to fight stagflation is to buy companies profiting from inflation.

On this note, put next Tuesday at 4 PM ET on your calendar. That’s when Louis will be holding a special, live event called Prediction 2022.

Regular Digest readers know that Louis is a “quant” investor, basing his market decisions on impartial data that are rooted in one thing: fundamental strength.

Part of fundamental strength today means companies that possess the earnings power to offset inflation, just as Louis noted.

Next Tuesday, Louis will be discussing his system, and most importantly, how it can help you find the strongest stocks for today’s incredibly challenging market.

By the way, just for attending, Louis will be giving away his #1 stock to buy today. Perhaps as importantly, he’ll be warning about a stock you should sell immediately if you find it in your portfolio. You’ll also get Louis’ latest special report, “13 Stocks to Sell Immediately.”

We’re expecting a huge turnout. To reserve your seat, just click here.

Have a good evening,

Jeff Remsburg