Could the White House's Plan to Tap Into Oil Reserves Actually Fuel Corn Prices?

The White House is tapping into oil reserves in an effort to help relieve the rising prices drivers are currently facing at the pump. The U.S. joins five other countries who say they’ll tap their domestic strategic petroleum reserves (SPR), which includes China. That’s as gasoline prices are contributing to inflation, which is increasing at the fastest rate in 31 years.

The announcement from the White House was largely expected by oil traders and industry watchers. According to Pro Farmer Washington Correspondent Jim Wiesemeyer, Energy Information Administration (EIA) Administrator Stephen Nalley told Congress just last week that releasing 15 million barrels to 48 million barrels of oil from the SPR would lower crude prices by around $2 per barrel, the equivalent of 10 cents per gallon for gasoline.

Oil prices ticked higher after the announcement, reversing the softer tone commodity prices have seen recently.

“Going into that announcement, crude oil sold off $8 to $9 a barrel,” says Chip Nellinger of Blue Reef Agri-Marketing. “In fact, I think it could backfire in the end, as the announcement only amounts to two or three days worth of oil usage anyway.”

“The move from the U.S. government is very little more than just kind of a publicity or a political move,” adds Joe Vaclavik of Standard Grain. “It doesn't have huge material impact on the oil or gasoline situation. I don't think this is anything that's going to reduce your gas  price at the pump by 50 to 60 cents.”

According to Wiesemeyer, OPEC+ officials have already warned they’re likely to respond to the Biden administration’s plans, and in turn, Wiesemeyer says its “setting up a fight for control of the global energy market. The Saudi-based International Energy Forum said producers may change their plans for output increases if there is a sale of reserves.”

Nellinger says if the administration’s decision to tap into reserves has the opposite impact on the crude markets, it could be supportive for corn prices.

“We risk seeing the wrath of OPEC here down the road,” says Nellinger. “So they'd have to come out and cut production, and we've got a real problem on our hands. So, I don't think it impacts corn demand. In fact, I think it could do the opposite in the first quarter is crude oil prices rise eventually, probably above the recent highs here.”

Vaclavik says ethanol production has been a bright spot in the demand picture for corn lately, something that could continue to support corn prices through the remainder of 2021.

“The ethanol industries is still pushing the corn market with variable basis bids and  just flat price in general. I mean, I think [the White House announcement] is not a factor here for the moment."