(Bloomberg) — President Joe Biden’s effort to tame pump prices by tapping government oil stockpiles could backfire for one simple reason: American gasoline prices more closely track international, rather than U.S., oil benchmarks.
Most Read from Bloomberg
Asia’s Richest Man Looks to Walton Family Playbook on Succession
Billionaire Family Feud Puts a Century-Old Business Empire in Jeopardy
The 24-Year-Old Aiming to Dethrone Victoria’s Secret
The Winners and Losers From a Year of Ranking Covid Resilience
New York City Is Building a Wall of Oysters to Fend Off Floods
That matters because a 50 million-barrel flood of crude from government stockpiles will increase domestic supplies, widening the price differential between U.S. benchmark WTI and its global counterpart Brent.
Brent’s premium over U.S. crude futures climbed to a six-week high in the hours after the White House announced it would release oil from the Strategic Petroleum Reserve in concert with other nations. That means U.S. demand centers that typically rely on imports may have to pay more for their crude, albeit temporarily, which could translate into higher gasoline prices.
READ ALSO: Oil Advances With Global SPR Release Smaller Than Expected
“U.S. gasoline prices reflect Brent since we import gasoline and blendstocks from overseas, especially into the the East and West Coasts,” said Kevin Book, managing director of research firm ClearView Energy Partners.
Bets that the spread between WTI and Brent will widen further are increasing too. On Tuesday, 6.5 million barrels worth of crude traded on the chance that the spread widens past $5 within a few months time.
(Updates with details on options trade in the final paragraph.)
Most Read from Bloomberg Businessweek
Medical Debt Is Crushing Black Americans, and Hospitals Aren’t Helping
Wildfires Are Getting Worse, and One Chemical Company Is Reaping the Benefits
How Child Care Became the Most Broken Business in America
Boeing Built an Unsafe Plane, and Blamed the Pilots When It Crashed
©2021 Bloomberg L.P.