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The Energy Report

Phil Flynn
http://www.pricegroup.com/
pflynn@pricegroup.com


It’s Not What They Say It’s What They Do. The Energy Report 08/19/2026

Kevin Warsh’s Fed is a throwback reminder of the old days: when it comes to Fed policy, watch what they do—not what they say. Oil and product prices reversed lower after the Treasury announced increased sizes of its nominal long-end buybacks. The move is effectively buying bonds, which softens yields, catching the market by surprise as it adds liquidity and could signal the Fed will not be raising interest rates any time soon. The U.S. Treasury is stepping up its support for the long end of the bond market. It plans to at least double its buybacks of older nominal coupon securities in the 10- to 20-year and 20- to 30-year ranges. That means the current cap of $2 billion per operation will rise to at least $4 billion. The change takes effect September 9, 2026, and runs through November 4, 2026.

To be clear, this is the Treasury creating more demand for older long-term bonds that dealers have been trying to sell—it is not a new round of Federal Reserve quantitative easing. Even so, the move leaves the private market with less long-term debt to absorb, just as 30-year yields were nearing 20-year highs amid fiscal concerns and inflation fears tied to the Middle East standoff. The result is lower long-term rates and easier financial conditions, without the Fed having to say a word.

At the same time we’re hearing a lot of strategic petroleum reserve hypocrisy as people are criticizing the trump administration for drawing down the strategic petroleum reserve for the purpose that it was actually intended for. il in the Strategic Petroleum Reserve has fallen to 298.7 million barrels. That is the lowest level since 1982 — back when we were still filling the caverns and most Americans had never heard the letters S-P-R ut felt the pain from the Arab Oil embargo and silly price caps that caused gas lines shortages and odd and even days

On the EIA weekly tape you have to go to January 1983 to find a print this thin. The Energy Department reported a 6.1 million barrel draw for the week ended August 7. We are under 300 million barrels for the first time in more than four decades.

The sad thing is not the number. The sad thing is that some people are complaining about it as if the Strategic Petroleum Reserve was supposed to be a never-ending supply — like an oil well that just keeps pumping because we wish it would. It’s not an oil well and it never was supposed to be. A well makes oil; a reserve uses it—mix them up, and you’ll end up scolding an empty tank.

The SPR was built after the 1973–74 Arab oil embargo, written into law in the Energy Policy and Conservation Act of 1975, and parked in sixty-one salt caverns at four Gulf Coast sites — Bryan Mound and Big Hill in Texas, West Hackberry and Bayou Choctaw in Louisiana. Congress authorized a shock absorber for a severe energy supply interruption. Not a campaign thermometer. Not a second Permian. Not a tap you open because gasoline is politically inconvenient in an election year.

This year the interruption was not a talking point. Iranian attacks slowed tanker traffic through the Strait of Hormuz — the ditch that still carries a fifth of the world’s seaborne oil. On March 11, President Trump authorized a release of up to 172 million barrels as the U.S. share of a 400-million-barrel International Energy Agency action. That is what the statute is for. That is what the IEA membership is for. The SPR was used the way it was supposed to be used: in case of a severe oil supply disruption. That is kind of like people complaining that the fire department used water to put out a fire.

Nobody stands on the sidewalk after a three-alarm blaze and says, “Can you believe they used the water? Now the reservoir is lower.” Of course they used the water. That is why the reservoir exists. You do not build a firehouse so the trucks can look pretty in the parade. You build it so that when the warehouse goes up, someone shows up with a hose.

Hormuz was the warehouse. The SPR was the hose. If you wanted the hose to stay coiled on the wall while the world’s energy chokepoint seized up, you did not want a strategic reserve. You wanted a museum exhibit. You do not blame the firehouse for using the water. You do blame the kid who opened the hydrant for staying cool.

And what is crazy — what still makes me shake my head — is that some of the same people now wringing their hands over a 298-million-barrel print are the same people who advocated that the Biden administration should use the reserve just to cool off prices. Not because a strait was closed. Not because a war had taken barrels off the water. Because the pump was embarrassing. They do not have to take my word for it. They said it themselves.

The first time the Biden administration tapped the SPR was not for a hurricane, not for a closed strait, and not for a shooting war in the Gulf. It was November 23, 2021. Gasoline was high and the midterms were a year away. The White House put the purpose in the headline, in black and white: “President Biden Announces Release from the Strategic Petroleum Reserve As Part of Ongoing Efforts to Lower Prices…” Read that again. Ongoing efforts to lower prices. That is not the language of a severe energy supply interruption. That is the language of a thermostat. The release itself was just as blunt. “Today, the President is announcing that the Department of Energy will make available releases of 50 million barrels of oil from the Strategic Petroleum Reserve to lower prices for Americans,” the White House wrote. And again: “That’s why President Biden is using every tool available to him to work to lower prices.” And again: “Today’s announcement reflects the President’s commitment to do everything in his power to bring down costs for the American people.”

President Biden said the quiet part at the microphone. “Our combined actions will not solve the problem of high gas prices overnight,” he told reporters that afternoon. “It will make a difference. It will take time, but before long, you should see the price of gas drop where you fill up your tank.” And hopefully make them forget that it was their anti-fossil fuel prices that got those prices to rise in the first place.

Energy Secretary Jennifer Granholm made the mission statement official: “This action underscores the President’s commitment to using the tools available to bring down costs for working families and to continue our economic recovery.”

There it is. The first tap was to control prices. They were not ashamed of it. They advertised it. They coordinated it with China, India, Japan, Korea, and the U.K. so the signal would be louder. That is the kid at the hydrant — in their own press release.

Then came March 31, 2022. Russia had walked into Ukraine, and this time there was a real supply story. The White House still could not help itself. The fact sheet was not titled as a wartime interruption. It was titled “President Biden’s Plan to Respond to Putin’s Price Hike at the Pump.” One million barrels a day for six months — 180 million barrels, the largest release in the history of the reserve — sold, in their own framing, to cut gas prices and fight inflation. Later, in 2024, Secretary Granholm was still saying the administration was “laser-focused on lowering prices at the pump for American families.” Press Secretary Karine Jean-Pierre bragged about “historic releases from the Strategic Petroleum Reserve” as a cost-cutting tool.

They were the kid at the hydrant — staying cool, while the pressure dropped for a real fire.

Every firefighter knows the move. It is July. The street is melting. Some kid wrenches open the hydrant and the block has a party. The water is cold. The voters are happy. And six blocks over, when the actual fire starts, the pressure is gone. That is not a metaphor I invented for television. That is how municipal water systems fail. It is also how strategic stocks fail.

From late 2021 into the summer of 2023 the SPR fell from about 618 million barrels to about 347 million — a draw of historic size, much of it sold into a market Washington wanted quieter into an election calendar. They later bought some back, canceled some mandated sales, and got the reserve back up toward 400 million, then a little above 415 million on the eve of the Iran war. Fine. Credit where it is due: a refill is better than a speech about a refill. But you cannot spend the pressure in 2021 and 2022 and then act shocked that the hose feels thinner when Hormuz actually burns.

If you argued then that presidents should treat the SPR like a thermostat — a couple of million barrels a day to “send a signal” to traders — you were the kid at the hydrant. If you are arguing now that using the same reserve in a genuine chokepoint war is a scandal, you are complaining that the fire department used water. You do not get to be both people in the same sentence and still call it a principle.

The law is not mysterious. The president may draw the SPR upon a finding of a severe energy supply interruption, or to meet an International Energy Agency obligation. There is a narrower, limited drawdown authority that is capped and still tied to supply, not to the Michigan average for regular unleaded. Prior to 2022, the emergency sales were Desert Storm in 1991, Hurricane Katrina in 2005, and the Libya disruption in 2011. Those releases ran from about 11 million barrels to about 31 million. Measured. Aimed at barrels that were actually missing.

The 2022 sale of 180 million barrels was the largest in the reserve’s history. The 2026 authorization of 172 million is in that same rare air — except this time the missing barrels are not a model on a White House slide. They are tankers that cannot transit the strait. If you cannot tell those two stories apart, you should not be anywhere near energy policy.

A few more facts, because facts are what the complainers skip. Authorized storage is about 714 million barrels. The all-time peak was 726.6 million in December 2009. At 298.7 million we are at roughly 42 percent of capacity. The Department of Energy can, on paper, push 4.4 million barrels a day out of the caverns. At these inventories the practical rate is closer to 1.0 to 1.4 million a day — which is another way of saying the kid at the hydrant did not just spend water. He spent pressure. And you cannot pump a salt cavern down to the floor. Operators talk about a heel of something like 70 million barrels just to keep the caverns structurally honest. This is a strategic stockpile, not a checking account you empty for a long weekend.

Anyway in the short term of course with the Federal Reserve giving oil a bit of a boost and recovering from the turn around Tuesday it seems that prices for oil and products might get back into a range the diesel crack spread in October which is now the lead month came just shy of $100 a barrel which is absolutely incredible. Of course we went over yesterday all the reasons why the green new new deal and those type of policies led to the diesel shortage even the yesterday’s American Petroleum Institute report seemed to suggest that crude oil isn’t the problem right now it is diesel as the report showed The crude supplies fell by 328,000 barrels last week we did see an increase in gasoline supplies of 1.076 but in the beleaguered distillate category supplies fell by 2.797 million barrels.

And even as traffic has fallen down in the Strait of Hormuz there are still reports of oil getting out Saudi Arabia for example selling barrels in Oman is being reported which signals that somehow they’re getting more barrels out through the straightforward moves than it’s being reported the question is how much is getting through how much is being reported nobody seems to know but the one thing we do know that finding oil isn’t the problem right now it’s getting it through the refinery in fact right now it seems to be easier to get oil through the straight and poor moose than it is to get enough oil through the refinery to create a much diesel to meet demand maybe we shouldn’t have shut down all those refineries what do you think.

Let’s flip on to natural gas which seems to be getting a little bit of an attempt at the bottom once again. Perhaps a little bit of heat, perhaps a little bit of optimism on LNG exports, perhaps those supply trains starting to roll again—but the key thing, as always, is weather. Fox Weather today is reporting that dangerous heat is locked in across the South with Extreme Heat Warnings stretching from the southern Plains into the Deep South and building into the Southwest. We’re talking triple-digit temperatures again in Texas and Oklahoma, heat indexes pushing 110 in spots, and overnight lows that give you almost no relief.

That’s the story behind this bounce. The September contract is trading around $2.85 this morning, up better than 2.5% after yesterday’s 3.2% jump to $2.776. It’s the first real attempt in a while to put in a floor after we’ve been grinding around in the mid-to-high $2.60s. The Texas heat wave is doing the heavy lifting. ERCOT is looking at possible new all-time peak power demand later this week as folks crank the AC and wind generation stays sluggish. Houston’s expected to average around 100 degrees through the weekend. That extra power burn is the kind of near-term demand that can give the market a lift even when the bigger picture is still well-supplied.

On the LNG side, feedgas flows to the big export terminals are holding around 17.2 to 17.7 Bcf a day—steady with July and still a solid pull on the market. We’re seeing some of those new trains continue to ramp, Corpus Christi Stage 3 adding volume, Golden Pass commissioning. That’s the longer-term optimism. Every extra cargo that leaves the Gulf is one less Bcf sitting in storage.

But let’s not get carried away. Production is still running hot—Lower 48 dry gas around 111-112 Bcf a day, near record levels. Storage is building comfortably and the EIA is still looking at inventories heading into winter that could be the highest in a decade. So this heat is giving us a bounce, not a breakout. If the models hold and this southern heat lingers, we could see another push. If it starts to break down sooner than expected, we’ll be right back testing those recent lows.

Weather remains the swing factor. Watch those 6-10 and 8-14 day outlooks. That’s what’s going to decide whether this attempt at the bottom has any staying power.

Make Sure you download the Fox Weather ap and Stay tuned to the Fox Business Network also call o open our account at 888-264-5665 email pflynn@pricegrop.com.



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