Commentary -- Biden Surge -- Crude Oil In Storage: 26.1 Days In Storage -- April 3, 2022

I am absolutely convinced that the Biden administration is in a panic over the price of gasoline this summer, and perhaps an even bigger concern: the price of diesel. The administration has certainly "lost" the truckers, but farmers are historically "blue" and they represent a huge voting bloc in the midwest, the midwest being defined by CNBC as anything west of the Hudson River and east of Silicon Valley, out in California.

But first, gasoline.

Just look at this graph.

The only thing that I get out of this graphic is that it will never be filled again in my investing lifetime. From CommodityContent.

Twenty-seven years to get the SPR filled and then another eleven years of maintaining despite:

• using the SPR as a political tool; and,
• selling oil from the SPR since 2015 to pay for the deficit.

The Biden administration decided to sell off that largesse over six months, between now and the mid-term elections.

38 years = 72 six-month periods. 

In one six-month period, the government will sell off what it took 72 six-month periods to fill / maintain. Wow.

It appears, in doing so, the minimum storage has been set: 260 million bbls.

It also means -- and I think that this point has been lost on everyone -- no president in the foreseeable future will be able to use the SPR for political purposes. 

Unless of course the low bar of 260 million bbls is still too high. 

No one knows where the minimum storage number should be.

But I digress.

Here's the number that is the most important. Days of supply of oil in commercial storage as reported by the EIA. 

First, some perspective:

• the most bullish -- but yet "safe" number: 21 days
• most unreasonable number: anything with a four-handle (40+ days of supply in storage)
• bullish: when days of supply in storage is trending down after hitting 28.8 days (November, 2021) and hitting 26.3 (January, 2022) just a couple of months later
• now: trending down again, and now at 26.1 days of storage
• we haven't seen a number below 26.1 since January, 2020 (25.9)

Reality before the Biden Surge decision announced:

• price of crude oil and gasoline surging
• gasoline at $6 / gallon in #1 commuting state: California
• after months of begging Saudi Arabia to increase production: nada
• after weeks of ridiculing US shale to get operators to increase production: nada
• days of supply of oil in commercial storage dropping
• after huge misstep a year ago: killing the Keystone XL
• sanctions on Russia with hope for a short war: didn't pan out; war will drag on much longer
• even if war ended today, would sanctions end by May 31, 2022, the official opening US summer driving?
• the final blow, the tipping point: OPEC not even taking phone calls from Washington (DC) any more on this issue.
  

The Biden administration really had no choice: the only question -- how big and how fast would the release be?

• max release is probably less than one million bopd -- so that was the upper limit
• after the mid-terms, it no longer matters
• it all came together -- one million bopd over six months

The graphics:

The big question is whether the energy story of the year (diesel) was a major consideration leading up to the Biden Surge decision. As noted above, as bad as the gasoline situation is, the diesel situation is seen by many as being even worse.

The EIA distillate data is here. I have not followed the diesel / distillate story until recently and cannot comment, so will simply provide the graphics.