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Will exploiting the US Strategic Oil Reserve reduce oil prices?

President Joe Biden tried to send a Thanksgiving gift to US drivers on Tuesday, the country’s biggest announcement ever release oil reserves in an attempt to lower the price of gasoline.

It is a striking move for a leader who has placed climate change central to his legislative plan, and as one candidate said the United States must “transform from the oil industry.”

What has been announced?

The US says it will release 50 million barrels of oil from about 600 million of its own Strategic oil reserves – an underground reserve created after the oil crisis of the 1970s.

Britain, India, South Korea, Japan and China also agreed to release oil reserves. The UK’s planned release is up to 1.5 million barrels. India will release 5m barrels. Volumes from others are yet to be determined: Energy Aspects, a consulting firm, said it expected more details from China to emerge in the next few days, to distance itself. with US notice.

The U.S. total that covers about half a day of worldwide oil demand is about 100 million bpd. About 32 million barrels will be delivered between mid-December and end-April 2022 in swaps with oil companies, who must then return the same amount by 2024. 18 million barrels remain accelerate sales that Congress has authorized.

A navigation map showing the Gulf Coast region in the United States with the locations of the United States Strategic Petroleum Reserves marked in orange circles along the Texas/Louisiana coast.  Major cities like New Orleans and Houston are also labeled.

Why now?

Other efforts to regulate gasoline prices, including request So far Saudi Arabia, and the Opec + producer group, have been struggling to pump more oil. The administration first signaled the possibility of tapping the strategic reserve at a Financial Times conference last month, when Jennifer Granholm, the US Secretary of Energy, said in a statement. was “reviewed”.

The announcement of plans to extract more fossil fuels ahead of the COP26 climate conference this month would be politically awkward, analysts say. The government also needs time to negotiate with partner countries.

During the measurement, inflationary has emerged as an urgent issue in the country. Republicans have blamed Biden’s climate policies for gasoline prices about 60 percent higher than they were a year ago.

“With the unprecedented economic shock of epidemicJason Bordoff, co-founder of the Columbia Climate School, said: “

Will it lower the price?

The oil market is expecting a larger share issue than the US has announced. Crude oil gains met on Tuesday, with international benchmark Brent crude up 3.3% at $82.31 a barrel.

“Threatening it and talking about it seems like a pretty good thing to do,” said Jamie Webster, senior director of the BCG Center for Energy Impact. “But as you can see from the price. . . it didn’t really have the effect anyone was hoping for. ”

Amrita Sen, director of research at Energy Aspects, said the release was “a symbolic move” that would have less lasting impact. Release could take six months, oil would have to be replenished and mostly “sour” crude, high in sulfur as the market tightens on the “sweet” grade, she said.

Traders will now focus on the Opec+ meeting on Dec. 2. Led by Saudi Arabia production team supply has increased by 400,000 bpd per month as it restores output cut last year. However, analysts say it may now pause those increases.

Opec did not respond to a request for comment. “All market developments will be reviewed at next week’s ministerial meeting,” said a person familiar with the group’s position.

West Texas Intermediate (USD/barrel) line chart shows US oil prices have risen as world emerges from pandemic

How will geopolitics play out?

Until Tuesday’s announcement, the biggest US oil release came during the 2011 civil war in Libya, when crude prices threatened to soar above $120 a barrel. The International Energy Agency coordinated that release and it was backed by Saudi Arabia.

The IEA is not involved in the case, and some European countries oppose the use of the emergency stockpile for political reasons, according to a person familiar with their position. Instead, the White House has turned to major Asian consumers, highlighting the changing market forces since the industrialized nations established the IEA in the wake of the 1973-74 oil crisis.

The release could also mark a new turning point in US relations with Opec+. It was Donald Trump who called on Saudi Arabia and Russia, amid last year’s dire oil prices, to cut production in an effort to lift prices and save the US shale field from collapsing. Now America is asking for the opposite.

The SPR release will not improve the mood in Riyadh. “The Saudis don’t seem to want to be pushed into a corner,” said Helima Croft, global head of commodity strategy at RBC Capital Markets.

She “doesn’t completely rule out” that the kingdom could scale back its planned Opec+ production increase – a move she said could then spur congressional Democrats to revive the Is called Nopec group-targeted legislation for cartel behavior.

What can America do next?

The federal Energy Information Administration said even before Tuesday’s announcement that oil and gasoline prices are likely to fall next year.

If not, “the president has a lot of tools that he’s looking at – and those tools are still on the table,” Granholm said Tuesday.

Analysts say a crude export ban, which was liberalized for the first time under the Obama administration, is a distant possibility. Reducing the biofuel component in gasoline blends is another option.

More fallacies about collusion or market manipulation by US oil producers are also justified. The Biden administration sought to investigate the possibility Fisher Price and urged industry to increase production.

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