Releasing crude oil from reserves is the only easy tool Biden has in an attempt to curb the rise in fuel prices, which has fueled inflation and helped lower the president’s approval ratings. Weeks of anticipation on Tuesday’s decision have already started to have a calming effect at the pumps, said the administration, which had also coordinated with countries like China, Japan, India and Korea. of the South to make their reserved crude available.
“This results in weeks of consultations with countries around the world, and we are already seeing the effect of this work on oil prices,” the White House said in a statement on Tuesday. “In the past few weeks, as reports on this work became public, oil prices have fallen nearly 10 percent.”
OPEC and its partner Russia had previously rejected Biden’s pleas to help lower prices by increasing their oil production. US oil companies, meanwhile, are struggling to increase their own production as investors are more interested in cash returns than increased drilling. Businesses also spent much of 2020 slowing down drills as the pandemic kept fuel demand low.
Republican senators and the oil industry condemned the move, calling it political use of stored crude for use in times of hurricanes and war.
“President Biden’s policies increase inflation and energy prices for the American people. Tapping the strategic oil reserve will not solve the problem, ”said Sen. John Barrasso (R-Wyo.), Who criticized the administration’s efforts to limit auctions of federal lands to oil producers. “Asking OPEC and Russia to increase production and now use the strategic oil reserve are desperate attempts to deal with a disaster caused by Biden. They do not replace American energy production.
Senator Kevin Cramer, a Republican from the major oil-producing state of North Dakota, joined us, saying the move was not a solution to high gas prices.
“The strategic oil reserve is intended to provide energy in the event of a national emergency”, he said in a statement. “The only national emergency is President Biden’s terrible energy policy in which he willfully cut US production, then embarrassingly begging OPEC to make up the difference.”
Oil industry experts have also complained about using the reserve as a market solution rather than a safety net when supply is disrupted. This last happened in September when the Biden administration made SPR oil available after Hurricane Ida crippled oil infrastructure on the Gulf Coast.
“There are only nuances of difference between selling the SPR to pay the country’s VISA bill and looting it to try to bring down prices at the pump,” said Bob McNally, director of the consulting firm. energy Rapidan Energy Group and former international energy advisor to George W. Bush. administration, said in an email. “Both are policy mistakes in my book. The key and controversial point is that this is the largest SPR publication ever and was carried out without urgency and in order to “send a message to the Saudis” and bring down oil prices ” .
But tapping into strategic reserves for non-urgent reasons has long been a practice for presidents of both parties, including as a lucrative system for the federal government. And the Republican Congress that reigned under President Donald Trump gave Biden political and legal cover for his move.
Under legislation dating back to 2017 to help pay for the Trump administration’s tax cuts and close budget gaps, Republicans joined Democrats in demanding the Department of Energy sell $ 107 million barrels of crude oil from fiscal year 2022 to 2027. For Tuesday’s announcement, the Energy ministry specifically cited the bipartisan budget law of 2018 requiring 18 million barrels to be sold to help pay for reductions in oil. taxes.
The remaining 32 million barrels would be considered a “loan” that companies would have to repay in the future with their own barrels.
Bracewell lobbying firm derided the movement as “SPR Tanks Giving” in an analysis note, calling the publication a “signal of political virtue which will give them the chance to take credit for the movements the market is already making”.
Yet the well-publicized news that the international coalition would make more oil available seemed to meet the administration’s target even before Tuesday, as oil prices fell a few days ago, said Roger Diwan, vice president. of the energy research company IHS Markit. Prices have fallen to around $ 76 a barrel over the past week, down from around $ 84 at the end of last month, as a further rise in Covid cases in Europe has raised fears of lower fuel demand even then. that expectations were growing that an SPR version was in the works.
“The bullish price momentum has been interrupted”, Diwan said in a post on Twitter. “The SPR version has already achieved its goal.”
Still, oil prices are nearly double the level seen a year ago, however, driven largely by economic growth from the depths of the pandemic. Regular gasoline prices in the United States are averaging $ 3.40 per gallon, up 60 percent since last Thanksgiving.
As part of the action announced on Tuesday, the United States will immediately store 32 million barrels of oil in salt caves along the Gulf Coast available “in response to the highest oil prices on record in seven years,” the Energy Department said. This decision “aims to ensure an adequate supply at the end of the pandemic”, he added. The remaining 18 million barrels would be offered on December 17.
Oil refiners have until Dec. 14 to bid on the proposed oil, the Department of Energy said. Deliveries will begin at the end of December and end in April.
The coordinated release marks the first time a large group of countries has acted in unison to curb high oil prices and is a wake-up call for OPEC and Russia, analysts said. With prices falling earlier this week, drivers should expect to see at least a slight drop in gas prices by the time they fill their tanks for Thanksgiving weekend.
“Today’s historic but highly unorthodox decision is a clear message to OPEC + that it is not the only player on the global oil market scene,” said Louise Dickson, Senior Oil Markets Analyst to the market analysis firm Rystad Energy. But “much of the downward price impact has already been built into the futures curve over the past week since China announced it was ready to cooperate following the Xi summit. -Biden “on November 15th.
Gasoline prices rose steadily for months as global demand for fuel accelerated as the global economy began to emerge from the pandemic. This increase in consumption exceeded the output of oil companies, which had suffered financially from the sharp drop in demand in 2020 and were reluctant to resume drilling in the face of uncertain economic prospects.
“As we emerge from an unprecedented global economic crisis, the supply of oil has not kept up with the demand, forcing working families and businesses to pay the price,” the Energy Secretary said Jennifer Granholm in a press release. “This action underscores the president’s commitment to using the tools available to reduce costs for working families and continue our economic recovery.
The wider oil industry acknowledged that Biden had the power to make the sale, but warned that the effect on prices would be short-lived.
“Congress has given the President and Secretary of Energy broad powers to manage the SPR and it is the responsibility of the administration to exercise that authority as it sees fit,” said Frank Macchiarola, vice president. senior policy officer at the American Petroleum Institute, in a statement. “We believe any impact resulting from a release of SPR is likely to be short-lived unless coupled with policy measures that encourage the production of US energy resources.”