US President Joe Biden on Tuesday ordered the release of 50 million barrels of oil from the US Strategic Reserve to help lower energy costs, in coordination with other major energy consuming nations, including India, the United Kingdom and China.
The US measure is aimed at global energy markets, but is also aimed at helping Americans deal with rising inflation and higher prices ahead of Thanksgiving and the winter holidays. Gasoline prices are around $3.40 (€3) per gallon, more than 50% higher than last year, according to the American Automobile Association.
“While our joint actions won’t solve the problems of high gas prices overnight, they will make a difference,” Biden promised in his remarks. “It will take time, but before long you will notice the gas price drop as you fill up your tank.”
The government will start taking the barrels to market in mid to late December. Gasoline usually responds to changes in oil prices, and management officials have suggested that this is one of several steps toward ultimately reducing costs.
Oil prices fell in the days leading up to the announced withdrawals, a sign that investors had been expecting moves that could bring between 70 million and 80 million barrels of oil in global markets. But in morning trading on Tuesday, prices jumped about 2% instead of down.
Claudio Galimberti, senior vice president of oil markets at Rystad Energy, said the market had been anticipating the news, and traders might have been disappointed when they saw the details.
“The problem is that everyone knows this is a temporary measure,” Galimberti said. “So once it stops, if demand continues to rise like it does now, then you’re back to square one.”
Shortly after the US announcement, India said it would release 5 million barrels of its strategic reserves. The British government has confirmed that it will release up to 1.5 million barrels of its stockpile. Japan and South Korea are also involved. US officials say it is the largest coordinated release of global strategic reserves.
Prime Minister Boris Johnson’s spokesman, Max Plann, said it was a “reasonable and calculated step to support global markets” during the recovery from the pandemic. Blaine added that British companies would be authorized but not forced to participate in the issuance.
The actions of the United States and others also risk adverse moves by the Gulf states, particularly Saudi Arabia and Russia. Saudi Arabia and other Gulf states have made it clear that they intend to control supply to keep prices high for the time being.
As news spread in recent days of a joint release coming from the reserves of the United States and other countries, there were warnings from OPEC interests that those countries might respond in turn, backing away from their promises to increase supplies in the coming months.
Senator from Wyoming, John Barrasso, was among the Republicans to criticize Biden’s announcement. The 3rd Republican Senator said the key issue is the restrictions on domestic production by the Biden administration.
“OPEC and Russia’s begging to increase production and use the Strategic Petroleum Reserve is now desperate attempts to address a disaster caused by Biden,” Paraso said. “They are not alternatives to US energy production.”
Biden has been quick to reshape much of his economic agenda around the issue of inflation, saying his recent $1 trillion infrastructure package will reduce price pressures by making transportation of goods more efficient and cheaper.
Republican lawmakers criticized the administration for soaring inflation to a 31-year high in October. The Consumer Price Index is up 6.2% from a year ago — the largest jump in 12 months since 1990.
The Strategic Petroleum Reserve is a contingency stock to maintain access to oil in the event of natural disasters, national security issues and other events. The reserves are held by the Department of Energy, and they are stored in caves created in salt domes along the Gulf of Texas and Louisiana coasts. There are approximately 605 million barrels of oil in reserve.
The Biden administration argues that the reserve is the right tool to help alleviate the supply problem. Americans used an average of 20.7 million barrels per day during September, according to the Energy Information Administration. This means that the release roughly equals about two and a half days of additional viewing.
“For now, I’m going to do whatever needs to be done to lower the price you’re paying at the pump,” Biden said. “Middle-class, working families who spend way too much and that’s pressure…You’re the reason I’m sent here to look for you.”
Biden said the White House was looking into potential price gouging by gas companies that put pressure on customers while making money from lower oil costs.
The coronavirus pandemic has disrupted energy markets. With the start of the lockdown in April 2020, demand collapsed and oil futures prices turned negative. Energy traders didn’t want to fall into the trap of crude oil they couldn’t store. But as the economy recovered, prices jumped to a seven-year high in October.
US production has not recovered. EIA figures put average domestic production at about 11 million barrels per day, down from 12.8 million before the pandemic began.
Republicans have also taken advantage of Biden’s efforts to reduce drilling and support renewable energy as a reason for lower production, although there are multiple market dynamics at play as fossil fuel prices have soared around the world.
Biden and administration officials insist that extracting more oil from the reserve does not conflict with the president’s long-term climate goals, because this short-term fix addresses a specific problem, while climate policies are a decades-old long-term answer.
They argue that the administration’s push to promote renewable energy will eventually mean less reliance in the United States on fossil fuels. But this is an apt political argument — in simple terms, higher prices reduce use, and higher gasoline prices may force Americans to reduce their dependence on fossil fuels.
“The only long-term solution to higher gas prices is to continue our drive to eliminate our dependence on fossil fuels and create a strong green energy economy,” Senate Democratic Leader Chuck Schumer said in support of the issuance.
The White House’s decision comes after weeks of diplomatic negotiations. Biden and Chinese President Xi Jinping spoke about steps to address oil shortages in their virtual meeting earlier this month and “discussed the importance of taking measures to address global energy supplies,” according to the White House.
The Ministry of Energy will provide oil from the Strategic Petroleum Reserve in two ways; The White House said 32 million barrels will be released in the next few months and will return to reserves in the coming years. Another 18 million barrels will be part of the oil sale authorized by Congress.