WASHINGTON , -- Tuesday's order by President Joe Biden to release 50 million barrels from America’s strategic reserve in an effort to lower energy costs. This was done in coordination with other energy-consuming countries, such as India and China.
The U.S. is taking action to support global energy markets and also help Americans cope with rising inflation ahead of Thanksgiving and winter holidays. According to the American Automobile Association, gasoline prices are now at $3.40 per gallon. This is more than half the price of a year ago.
In mid- to late December, the government will start to pump barrels into gas markets. However, this action will not immediately reduce gas prices as families travel for the holidays. Officials from the administration suggested that this was one of many steps towards lowering gas prices.
In the days leading up to the withdrawals, oil prices fell. This was a sign that investors had anticipated the moves that could result in an additional 70 million to 80million barrels of oil being added onto the global markets. However, oil prices rose by almost 2% in Tuesday morning trading instead of falling.
Claudio Galimberti (senior vice president for oil markets at Rystad Energie) stated that the market was anticipating the news and traders might have been overwhelmed when they saw the details.
Galimberti stated that the problem is that everyone knows that this temporary measure is temporary. "So once it's stopped, then if the demand continues to exceed supply as it is now, then you will be back at square one."
Soon after the U.S. announcement India announced that it would release 5,000,000 barrels from its strategic reserves. The British government confirmed that it would release as many as 1.5 million barrels from the stockpile. Japan and South Korea will also participate. Officials from the United States claim that it is the largest coordinated release of global strategic reserves.
Max Blain, the spokesperson for Boris Johnson, stated that it was a "sensible and measured step to help global markets" during pandemic recovery. Blain stated that British companies would be allowed but not required to participate in the release.
US actions and those of others could be countered by Gulf countries, including Saudi Arabia and Russia. Saudi Arabia and other Gulf nations have made it clear that they will control supply in order to maintain high prices for the moment.
In recent days, word of a forthcoming joint release from U.S. reserves and other countries' reserves spread quickly. However, warnings were issued by OPEC interest that these countries might respond in turn, reneging upon promises to increase supplies over the coming months.
John Barrasso, a Wyoming senator, was one of the Republicans that criticized Biden’s announcement. The No. The No. 3 Senate Republican stated that the core issue is the Biden administration's restrictions on domestic production.
Barrasso stated that "Begging OPEC and Russia for more production and now using Strategic Petroleum Reserve are desperate efforts to address a Biden–caused disaster." They are not a substitute for American energy production.
Biden has tried to change much of his economic agenda to address inflation. He claimed that his $1 trillion infrastructure package will lower price pressures and make it cheaper to transport goods.
In a speech last week, Senator McConnell from Kentucky said that the middle-class Americans were the ones who suffered because of rising prices. Arguments from the GOP are that the $1.9 trillion Biden coronavirus relief program in March sent too many dollars into the economy, causing prices to rise and affecting lower-income families.
McConnell stated that housing, transportation and food were the three largest drivers of last month's 6.2% inflation rate. "Those aren't luxuries, they're essentials."
The Strategic Petroleum Reserve serves as an emergency stockpile that allows oil to be available in the event of natural disasters or national security concerns. The Energy Department maintains the reserves in caverns located in salt domes on the Louisiana and Texas Gulf Coasts. The reserve contains approximately 605 million barrels worth of petroleum.
Jennifer Granholm, Energy Secretary, said that "As we emerge from an unprecedented global economic shut down, oil supply hasn't kept up with demand, forcing work families and businesses to bear the price." "This action demonstrates the president's determination to use all the tools at his disposal to lower the costs of working families and continue our economic recovery."
Biden's administration believes that the reserve is the best tool to ease the supply problem. According to the Energy Information Administration, Americans consumed an average of 20.7 millions barrels per day in September. This means that the amount of extra supply released is almost equal to two-and-a half days.
Energy markets were impacted by the coronavirus pandemic. Oil futures prices fell as a result of the closures that began in April 2020. Energy traders didn't want to be stuck with crude oil they couldn't store. However, prices rose to seven-year highs in October as the economy improved.
The U.S. has not seen an improvement in its production. Energy Information Administration data show that domestic production has fallen to an average of 11 million barrels per day, compared with 12.8 million when the pandemic began.
Republicans also took advantage of Biden's efforts in minimizing drilling and supporting renewable energy to explain the decrease in production. However, there are many market dynamics at work as fossil fuel prices around the globe are higher.
Biden and officials from the administration insist that tapping additional oil from the reserve is not in conflict with the president’s long-term climate goals. This short-term solution addresses a specific problem while climate policies are a long term solution over many decades.
They claim that the push by the Obama administration to increase renewable energy will lead to less dependence on fossil fuels. This argument is politically convenient. In simple terms, higher gasoline prices decrease usage. Americans could be less dependent on fossil fuels.
In support of the release, Chuck Schumer, Senate Democratic Leader, stated that "the only long-term solution to rising gas prices" was to keep marching to end our dependence on fossil fuels.
After weeks of diplomatic negotiations, the White House has taken this decision. According to the White House, President Xi Jinping (China) and Biden discussed steps to counter tight oil supplies during a virtual meeting earlier in the month. They also "discussed how important it is to take measures to address global energy supply issues."
According to the White House, 32 million barrels of oil from the Strategic Petroleum Reserve will be released by the Department of Energy in the coming months. The reserves will then return to the Reserve over the next several years. A sale of oil authorized by Congress will include another 18 million barrels.
Jen Psaki, White House Press Secretary, said Monday evening that the White House would monitor oil companies and look for price-gouging when there is a supply or the price is falling. The price of gasoline is not going down.