President Joe Biden said on Tuesday that the administration would exploit the strategic oil reserve as part of a global effort by energy-consuming countries to calm the rapid rise in fuel prices in 2021.
The coordinated release between the United States, India, China, Japan, the Republic of Korea and the United Kingdom is the first of its kind.
In total, the United States will release 50 million barrels of SPR. Of the total, 32 million barrels will be a trade in the next few months, while 18 million barrels will be an acceleration of a previously authorized sale.
“The president is ready to take further action, if necessary, and is ready to use his full authority working in coordination with the rest of the world to maintain an adequate supply as we emerge from the pandemic,” the White House said in a statement.
Tuesday’s announcement follows the administration’s announcement for months that it was studying the tools at its disposal as West Texas Intermediate crude futures soared to a seven-year high above of $ 85.
Prices at the pump have followed the rally, and are currently hovering around their highest level in seven years. The national average for a gallon of gasoline stood at $ 3,409 on Monday, according to AAA, from $ 2.11 a year ago.
“It’s a timely move to try to bring down oil prices,” said John Kilduff, partner at Again Capital. “This additional supply should help fill the production gap before winter, especially if we also get confirmation of a significant supply from several of the main Asian consuming countries,” he added.
As of November 19, the SPR held 604.5 million barrels spread over four sites, according to the Department of Energy. It takes 13 days after a presidential announcement for oil to hit the market, according to DofE.
In total, the SPR, founded in 1975 after the Arab oil embargo, can hold 727 million barrels.
The SPR can be exploited in three ways, according to the DofE: a full drawdown to counter a “severe power outage,” a drawdown limited to 30 million barrels, or a drawdown for a test trade or sale.
Following the announcement, US oil rebounded to its low, trading 28 cents at $ 76.50 per barrel. International benchmark Brent crude was $ 79.98 per barrel, up 34 cents.