When US President Joe Biden orders the release of 50 million barrels of oil from America’s strategic reserves to help reduce energy costs, he is targeting a growing burden on the millions of Americans who are starting to travel. on Thanksgiving.
The step announced Tuesday, taken with rare coordination with several other countries, is one of the few things the presidential administration can do to try to ease the pressure – and threat political threat – of rising inflation. However, the probability of providing meaningful relief in the near future is probably low. However, any help in lowering fuel prices, even modestly, would be welcomed by many Americans.
Here’s a look at what’s involved:
JUST WHAT IS THE OIL STORE?
The US Strategic Petroleum Reserve holds about 605 million barrels of oil in underground salt caves in Texas and Louisiana. It was created after the Arab oil embargo of the 1970s to store oil that could be extracted in case of an emergency. But the dynamics of the global oil industry have changed dramatically in recent years: The United States now exports more oil than it imports.
There is a limit to how many can be released at once. In the past, the government has discharged about 1 million barrels per day. At that rate, the promised flow of 50 million barrels of crude could last about two months.
WHY REDUCED BIDDING STARTED?
The idea is that by bringing more oil to market, the price will fall. That hasn’t happened yet. But depending on what happens in the rest of the world, there’s still a chance it works.
Oil prices rose slightly after the announcement. Claudio Galimberti, Senior Vice President of Oil Markets at Rystad Energy, said traders have been anticipating the news and may have been overwhelmed by the details.
Jim Burkhard, vice president of IHS Markit, said: “The immediate price reaction is not the final verdict on the effectiveness of this effort. “It really will be in the coming months.”
Whether the migration is effective or not depends on a number of factors.
WHAT ABOUT OPEC?
OPEC and its allies will meet in about a week to decide whether to increase output or hold back, a strategy the group often employs to raise prices. Earlier this month, Biden had hoped the OPEC nations, led by Saudi Arabia, would agree to significantly boost output. But they only increased modestly.
If OPEC decides next week that it wants higher prices, its members can take oil off the market. “Overnight, they were able to make up for it,” says Burkhard. “So that’s a big question mark, is how they react to this.”
Galimberti said the alliance Biden has assembled – bringing together India, China, Japan, South Korea and the UK to tap their strategic oil reserves – is unprecedented, Galimberti said. In total, he estimated, the group could bring an additional 70 million to 80 million barrels of oil to the market.
“It’s an alliance of oil importers,” he added. “But can they really replace, or can they really represent an OPEC-plus rival? The answer is absolutely not.” That’s because the group of importers is using their strategic petroleum reserves, which are limited. On the other hand, OPEC and its allies have oil reserves that could last for decades. “So there’s no comparison between the two,” said Galimberti.
GENERAL CHEAP CHEAP?
What many consumers want to know is what happens to gas prices at the pump point. Many factors affect the price of gasoline. Refineries buy crude in advance, so they’re still dealing with more expensive oil, and US states have different tariffs that affect prices. However, if OPEC doesn’t respond by cutting production, the outflow of oil could drive gasoline prices down by 10 cents to 15 cents a gallon, said Kevin Book, chief executive officer of Clearview Energy Partners. Even if the discount doesn’t happen, Biden could make the case he’s tried.
“Really, what we’re talking about are the most price-sensitive consumers in the economy,” says Book. “They may not show up in the GDP or recession numbers, but they show up in the votes as marginal voters who may or may not react in the next election cycle. follow and I think if we get it right then that’s really the point.”
The future of oil and gas in the U.S. is a political highlight and a source of tension, especially as companies and government agencies grapple with climate change and the transition to greenfields. cleaner energy source.
On the one hand, the US oil and gas industry has been praised by some political leaders for creating energy independence. Where the US was once heavily dependent on imports, other countries now depend on the US for oil. It’s also a provider of jobs: The oil and gas industry employs more than 10 million people in the US and contributes about 8% of the nation’s gross domestic product, according to the American Petroleum Institute. Any impact from Biden’s release of oil from strategic reserves “is likely to be short-lived unless it is combined with policy measures that encourage production,” API said in a statement. export energy resources of the United States”.
Oil supply companies benefit from higher prices. But consumers don’t like it when those higher prices trickle down to the pump.
“The broader drama is this new variable in the oil market: It’s the tension between decarbonization aspirations and the real concern for low gasoline prices,” Burkhard said. “And there’s a conflict between those two forces. And that’s why we’ll continue to see a disparity between supply and demand.”