Under mounting pressure to bring down high energy prices, President Biden announced on Thursday that the United States would release up to 180 million barrels of oil from a strategic reserve to counter the economic impact of the Russian invasion of Ukraine.
With the midterm elections just months away, gasoline prices have risen nearly $1.50 a gallon over the past year, undermining consumer confidence. And the cost of diesel, the fuel used by most farmers and shippers, has risen even faster, threatening to drive up already high inflation on all kinds of goods and services.
“I know how much it hurts,” Biden said Thursday as he announced the oil release. “As you’ve heard me say before, I grew up in a family like many of you where the price of a gallon of gas went up, it was a discussion at the kitchen table.”
Mr Biden has few tools to control commodity prices that are set in global markets, so he is turning to the Strategic Petroleum Reserve, ordering the biggest release since this emergency stockpile was created at the start. 1970s. But the move is likely to have a modest impact because it cannot offset all the oil, diesel and other fuels that Russia used to sell to the world but is no longer able to.
“Our prices are going up because of Putin’s action,” Biden added, referring to Russian President Vladimir V. Putin. “There is not enough supply. And the bottom line is that if we want lower gas prices, we need to have more oil supply right now. »
Oil prices fell slightly from Wednesday evening before the White House confirmed the plan Thursday morning. Mr Biden plans to release one million barrels of oil a day for 180 days. This would represent around 5% of US demand and 1% of global demand. To put that into context, Russian oil exports have fallen by around three million barrels a day.
Reaction from the oil industry and energy experts has been mixed. The reserve was mainly used to increase oil supply during wars, foreign threats to energy supply or natural disasters. The Biden administration’s small releases from the reserve beginning late last year have had little impact on the prices drivers and businesses pay for gasoline, diesel and other fuels made from it. from crude oil.
“It will bring the price of oil down a bit and encourage more demand,” said Scott Sheffield, chief executive of Pioneer Natural Resources, a major oil company in Texas. “But it’s still a band-aid on a significant supply shortfall.”
Oil prices have been rising over the past year even before Russia invaded Ukraine. After falling to historic lows in the early months of the coronavirus pandemic, oil prices recovered to levels not seen in nearly a decade late last year as economic growth resumed.
Oil exploration and production in the United States and many other countries plummeted during the pandemic, and still hasn’t fully recovered. US companies, under pressure from investors, have been cautious about spending too much money drilling new wells for fear that prices will come back down. Instead, many paid larger dividends and bought back their shares.
While that calculation might make sense for individual companies, it caused political problems for Democrats who hoped to reduce the use of oil and other fossil fuels to fight climate change. Now, under Republican attacks for high prices — in particular, soaring gasoline prices at the pump — Mr. Biden and the Democrats must change tack and are trying to get the oil industry to drill more.
Both sides of the political divide are eyeing November’s congressional elections, when inflation is expected to be a major issue for many voters.
On Thursday, Rep. Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, issued a press release decrying “bidenflation” and condemning what he called “Democrat push for tax hikes.” ‘crippling taxes and more out of control spending’.
Reacting to news of the reserve’s release, a spokesman for Rep. Kevin McCarthy, the Republican House leader, accused the president of “attacking American energy production in order to fulfill his campaign promise to “get rid of fossil fuels”.
Mark Bednar, Mr McCarthy’s spokesman, added: “As a result, the American people are paying the price because the gas is more than $4 per gallonand we are more dependent on other countries for energy.
Mr. Biden’s aides hope to soften that criticism by showing that the president is taking decisive action to try to bring prices down. In an oil release statement Thursday morning, the White House said Biden was “committed to doing everything in his power to help American families who are paying more out of pocket as a result.”
They are also trying to shift some of the blame for high prices onto oil companies, which the administration says are not doing enough to produce more energy to boost their profits. The administration plans to ask Congress to compel companies to produce on more than 12 million acres of federal lands cleared for extraction or face fines, a proposal that will likely face a surge.
Energy experts said the release of oil from the reserve would be more effective if other countries, such as China, also sold oil from their strategic stocks. The International Energy Agency, an organization of more than 30 countries, will meet on Friday and could recommend further releases of oil from national reserves.
Oil prices began to fall Wednesday evening in anticipation of Mr Biden’s announcement. They were down about 5% for Brent crude, the international benchmark, and 6% for West Texas Intermediate crude, the US benchmark, as of Thursday afternoon.
Russian oil exports normally account for more than one in every 10 barrels the world consumes. The United States, Britain and Canada have stopped importing Russian oil, and many oil companies and shippers in Europe and elsewhere have voluntarily stopped buying Russian energy products. This has produced a shortfall so far of about three million barrels per day.
The average price of regular gasoline in the United States is $4.23 per gallon, according to AAA, the automobile club. That’s about the same as a week ago, but up 62 cents per gallon last month.
Oil prices fell this week after peace talks between Russia and Ukraine showed the first signs of significant progress, although Russian officials, including Mr Putin, sent mixed messages about their intentions. Energy traders also fear global demand could plummet as China, the world’s biggest oil importer, imposes shutdowns in Shanghai and other places to deal with coronavirus outbreaks.
“The effect on prices will likely be short-term,” David Goldwyn, who was a senior State Department official in the Obama administration, said of Mr. Biden’s announcement. “But part of the benefit of this release is that it will provide a gateway to new physical supply coming online in the second half of this year from the United States, Canada, Brazil and other countries.”
Some environmentalists have criticized the release of the reserve. “Putting more oil on the market is not the solution to our problem but the perpetuation of our problem,” said Mark Brownstein, senior vice president of the Environmental Defense Fund.
But Meghan L. O’Sullivan, director of the Geopolitics of Energy Project at Harvard’s Kennedy School, said releasing more oil to ease shortages would not jeopardize the transition to clean energy. “What the past month has taught us is that if there is no energy security today, the appetite to take tough steps on the path to transition will evaporate,” he said. she declared.
Liberation is not without risk. Goldman Sachs analysts wrote in a research note that a large spill could cause “congestion” on the Gulf Coast, preventing new oil production from West Texas fields from entering pipelines and storage tanks.
Mr. Biden’s decision could also discourage Saudi Arabia and other global producers from increasing supply to reduce prices. OPEC Plus, a group led by Saudi Arabia and including Russia, decided on Thursday to maintain a policy of modest production increases.
Bob McNally, who was President George W. Bush’s energy adviser, said the statement was “not significant enough to offset the potential loss of Russian oil exports if the conflict and sanctions pressure continues to spread.” “.
The oil market tends to go in cycles, so the release can be an opportunity for the government to sell high and later buy low, potentially bringing in billions of dollars for the Treasury. The government will use this money to buy oil to fill the reserve, which in turn could help push prices up again.
While driving up those prices, Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy and former aide to President Barack Obama, said a possible recharge could also “send a signal to shale producers who could encourage them to invest in more production, which can help address potential shortages today.
The US reserve contains nearly 600 million barrels, or about one month of total US consumption. The maximum amount of oil the reserve can release is 4.4 million barrels per day.
The reserve was established after the 1973 energy crisis, when Saudi Arabia and other Arab producers declared an oil embargo. President George W. Bush increased reserve capacity shortly after the 9/11 terrorist attacks.
Eleven million barrels were released from caverns in the reserve after Hurricane Katrina in 2005 shut down production and refineries in the Gulf of Mexico. An additional 30 million barrels were released during the 2011 Arab Spring to relieve rising energy prices.