I am just as willing as many to criticize Joe Biden for his largely terrible economic policies. But we should still give credit where credit is due.
And he deserves some credit for his oil sales from the Strategic Petroleum Reserve.
There are currently 2 justifications for his sale of oil from the SPR. One is philosophical; the other is pragmatic.
The philosophical rationale is that the government should not be in the oil supply business. One of the strongest arguments for futures markets is that they give private actors a strong incentive to stockpile oil when they think the price will rise in the future and sell oil when they think it will fall in the future . The government spoils the works by being an unpredictable participant in the oil market. So it’s best not to have the government in this market at all. The way to get there is by selling the oil.
The pragmatic justification for selling oil right now is that the current price is unusually high and likely to be lower. The Oct. 20 spot oil price, reported by the Wall Street Journal on Oct. 21, was $85.98 a barrel. The December 2023 futures price was quoted as $74.81. So this is a good time to sell.
When I was senior economist for energy policy on President Reagan’s Council of Economic Advisers, one of my two bosses, Bill Niskanen, and I knew that we wouldn’t get very far by advocating what we both believe in: ending the SPR . So instead we advocated a price rule: buy low, sell high. Specifically, if I remember the 1983 prices correctly, we advocate buying when the price of oil falls below $20 and selling when it rises above $40. We didn’t get what we wanted, but Biden is coming close. He sells when it’s high and I suspect he’ll buy when it’s low.
But isn’t the SPR designed to deal with crisis situations? To a certain extent, yes. But how do you know there’s a crisis? So Bill and I came up with a pricing rule. If there is an oil supply crisis, it will show in the price.
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