Why the United States is selling stored oil to China

Critics, including conservative media, have attacked President Joe Biden for selling oil from the Strategic Petroleum Reserve to a Chinese company. Part of the coverage involves a link between sales and Chinese investments linked to Biden’s son, Hunter.

International oil market experts, however, told PolitiFact that the sales were governed by US law and they saw no way the Biden family could have influenced or benefited from the sales.

“It’s a political and ridiculous talking point,” said Patrick De Haan, vice president of GasBuddy, which tracks gasoline prices.

The US Strategic Petroleum Reserve dates back to the OPEC oil embargo in 1973 and 1974, when an oil price shock hit the US economy. It was designed to decrease the United States’ vulnerability to energy supply disruptions, according to the Congressional Research Service.

The reserve has a capacity of over 700 million barrels, stored in underground geological formations called salt domes. The reservation includes four sites, two in Louisiana and two in Texas.

Biden authorized the sale of some crude oil from the reserve to counter supply shortages, including the West’s decision to cut Russian oil following its invasion of Ukraine. The process is done through a long-running bidding process, and whoever pays the most gets the oil. (More on that in a moment.)

A batch of oil, totaling 950,000 barrels, was sold on April 21 at Unipec America, a Chinese company based in Houston. Other batches of crude oil, representing around 4 million barrels, were sold to companies based in other countries.

More than two months later, Biden’s reviews have surged. Fox News’ Tucker Carlson said Biden should be impeached for making the sale.

“So while gas prices are setting records in this country, while American citizens who were born here and vote and pay taxes cannot afford to fill up their own cars, the administration Biden is selling our emergency oil reserves to China,” Carlson said on July 6. “Isn’t that a criminal act?” It is certainly an unassailable case and they should impeach him for it.

Rep. Drew Ferguson, R-Ga., tweeted on July 7 that “Biden sending oil from the U.S. Strategic Petroleum Reserve overseas smacks of heaven. While Americans are paying record prices at the pump, this administration decides to give our oil to the EU and China.

The conservative Washington Free Beacon quoted Daniel Turner – executive director of Power the Future, a pro-American energy production group that targets “the radical environmental movement” – as saying the sale highlights the “Biden family relationship with China”. The article states that Hunter Biden is linked to Unipec’s parent company, Sinopec. “In 2015, a private equity firm (Hunter Biden) co-founded bought a $1.7 billion stake in Sinopec Marketing,” the article said.

Regarding any role for Hunter Biden, his attorney, George Mesires, issued a statement on October 13, 2019, saying that Hunter Biden would resign from the board of directors of BHR, the investment firm with operations in China, without receive no returns. on its investment or on distributions to shareholders. This would suggest there would be no Hunter Biden involvement in the 2022 sale to Unipec.

Experts said it was reasonable to ask why, if the United States tried to lower prices at the pumps at home, it would sell oil to foreign companies. But these experts offered a straightforward answer: it’s the law, and that’s how the international oil market works.

De Haan likened the long-running Strategic Petroleum Reserve process to an “eBay auction for crude oil.”

When an administration orders the release of oil from the Strategic Petroleum Reserve, “the Department of Energy issues a notice of sale which alerts companies that the oil will be made available for purchase,” said Hugh Daigle, professor at the University of Texas. Austin Department of Petroleum and Geosystems Engineering. “Companies then bid competitively on the oil, and the winning bidders receive the oil and the bid price.” The winning company determines with the Department of Energy when and how it will take possession of the oil.

Sometimes the winning bidders can be U.S. refiners, Daigle said, in which case oil quickly increases U.S. gasoline supplies. But in other cases, he said, foreign companies win the tender. This increases the global supply of crude oil and eventually helps lower prices in the United States.

The law does not prohibit foreign companies in good standing from participating in these auctions.

“Companies wishing to bid on the sale of petroleum must be registered with the Crude Oil Sales Bidding Program through the Department of Energy, and any company authorized to do business with the U.S. government may s sign up for that,” Daigle said. “In the event that a Chinese company has submitted a winning bid, there are no restrictions on the sale and delivery of oil to that company provided it is properly registered.”

Sales to foreign companies generally represent a minority of the oil auctioned from the Strategic Petroleum Reserve. Calculations made for Agence France-Presse revealed that of the 30 million barrels released from the reserve in June 2022, only around 5.35 million barrels were exported.

The oil market operates globally, especially since 2015, when the United States ended the ban on the export of crude oil produced in the United States. This means that the main factors driving prices down are changes in global supply and demand. Lower demand or higher supply drives prices down.

“The logic of allowing exports is that oil is largely fungible and globally priced,” said Robert McNally, president of Rapidan Energy Group. “So whether a barrel is refined in Louisiana or China or Italy, it doesn’t really matter from the perspective of the impact on domestic prices at the pump.”

Requiring oil to stay in the United States would be unnecessary and could be easily evaded, said Clark Williams-Derry, energy financial analyst at the Institute for Energy Economics and Financial Analysis. A US company could buy oil at auction while selling the equivalent amount of its own reserves to a foreign country, he said.

“These are not the same physical molecules, but the effects in US and global markets would be essentially identical,” Williams-Derry said.

It should also be noted that the company that buys oil from the reserve will need to have the ability to refine it. U.S. refiners are currently operating near capacity, and they may have particular capacity shortages for certain types of crude oil offered from reserve.

The international oil system, as constructed, is not necessarily “natural, inevitable or morally laudable”, since it is “primarily designed to operate for the benefit of oil companies and traders”, Williams-Derry said. . But, he added, this is the system we have. In this context, the auctioning of oil from the strategic reserve to the highest bidder achieves the political objective of lowering oil prices.

This article was originally published by PolitiFact, part of the Poynter Institute. It is republished here with permission. See the sources here and more of their fact checks here.

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