China increasingly appears to be the main beneficiary of President Joe Biden’s decision to sell the Strategic Petroleum Reserve (SPR) to lower domestic fuel prices.
Chinese-owned companies have pulled oil from US emergency supplies since the Biden administration decided last year to sell 180 million barrels at lower prices ahead of the midterm elections.
The SPR, which has a capacity of about 700 million barrels, currently has about 372 million barrels stored in salt caves along the Gulf Coast of Texas and Louisiana. That’s less than 594 million barrels, or nearly 40 percent, compared to a year ago.
The SPR was created to protect the United States from oil shortages and price spikes due to supply disruptions, but Biden’s historic downturn for political reasons sacrificed national energy security at a time when Russia’s war with Ukraine was just as could have caused a supply crisis.
And while Democrats in Congress benefited from falling prices in the polls, the biggest winner may be our country’s biggest opponent.
China – already the world’s largest oil importer – seized the opportunity to get additional barrels of oil on the market at a time when oil supplies from Russia threatened to dry up due to mounting Western sanctions against Moscow.
Data from the US Department of Energy shows that the US trading subsidiary of China’s state-owned refining company UNIPEC purchased just under 2 million barrels of SPR oil in 2022. But that figure is probably low since SPR sales are unrestricted, meaning refiners and traders can buy SPR oil and sell those barrels to other buyers at will.
That’s why one of the Republicans’ first moves after taking control of the US House of Representatives was to call for an end to this madness.
“Draining our strategic reserves for political purposes and selling them to China poses a significant threat to our national and energy security,” said Republican Rep. Cathy McMorris Rodgers. Cathy McMorris Rodgers, the new chairman of the US House of Representatives Energy and Commerce Committee.
On Jan. 12, the House passed a bill banning all SPR oil sales to Chinese companies. The Republican-backed bill passed by a vote of 331 to 97 and received significant support from Democrats.
While the Senate, which is under Democratic control, is unlikely to pass the measure, the bipartisan vote in the House shows Washington’s concern.
Why China’s communist leaders are allowed to take advantage of US energy supplies while continuing to thwart our strategic goals, undermine US companies doing business in the country and challenge us over Taiwan are legitimate questions for Congress to ask.
In addition to the SPR sell-out, Biden’s policy toward Ukraine has also dramatically lowered the price of Russian oil to China.
The United States and the European Union pulled their fists when they decided last year to impose an embargo on Russian petroleum exports to reduce Russian President Vladimir Putin’s ability to fund his invasion of Ukraine. Fearing a price spike, the Biden administration and Brussels set a price cap of $60 a barrel – about the same price that Russia could already sell its oil at a discount.
The EU was willing to limit the use of all its maritime services – insurance, financing, tankers – for anyone wanting to buy Russian oil. That would have caused major problems for Russian oil producers and their ability to export. But the Biden administration’s insistence on the high price cap allowed Russian barrels to keep flowing – at a lower price – which was a godsend for China.
China’s imports of Russian crude oil are up more than 8 percent in 2022 from the previous year, demonstrating robust trade between the two countries even after the Russian invasion of Ukraine.
As a result, China is now feasting on cheap Russian barrels trading at about $40 a barrel below the international crude benchmark Brent. So while the United States and its allies pay about $85 per barrel of oil, China spends about $45 to import Russian barrels.
That puts America at a significant competitive disadvantage relative to China, especially as Biden’s climate agenda continues to undermine new domestic oil production that could keep prices low in the long run.
If a government wants to tap into the SPR for non-urgent reasons, it must first increase the federal lands and waters available for domestic oil and gas development. That’s why House Republicans want to tie non-emergency SPR recordings with new federal exploration land leases to unleash America’s total energy potential.
China should not be barred from buying US energy. Knocking out the world’s largest energy importer would be a bad thing for America, one of the world’s largest producers and exporters of oil and natural gas. But energy deals must be made between private companies at market prices to ensure the highest prices – the government must stay out of it.
SPR oil is sold through a competitive bidding process and buyers are not restricted by nationality. For their part, the Biden administration claims it sold to the highest bidder, but they are learning that political interventions in energy markets can have unintended consequences. Let’s hope that House Republicans continue to hold them accountable.