Presidents don’t have a magic wand to make inflation go away. But they have a powerful tool that can help ease the pain of high gas prices: the strategic petroleum reserve.
More than any of his predecessors, President Joe Biden has aggressively leaned on this emergency oil stockpile to bring down the high prices at the pump that voters despise.
The SPR is a series of underground storage caverns containing large amounts of crude oil that can be released during wars, hurricanes, or other glass-breaking times. And Biden hasn’t shied away from doing so, especially since Russia invaded Ukraine in February.
The amount of oil in the SPR has shrunk by about a third – 36% to be exact – since Biden took office in January 2021. That left that emergency oil stockpile at its lowest point since June. 1984 – a time when the US economy and energy demand was much weaker than today.
And Biden isn’t done yet. The president plans to announce the sale of an additional 15 million barrels from the SPR on Wednesday, a senior administration official said Tuesday evening.
Biden has made it clear to his advisers that he is prepared to authorize future releases to balance the oil market, if necessary.
Above all, this latest sale which will be announced on Wednesday is not entirely new. This is part of the previously announced plan to release 180 million barrels of oil over six months. This record-breaking emergency release, detailed at the end of March, was a bit late. Now it looks like the administration will hit its 180 million target, it will just take longer than expected.
SPR headlines shake up an energy market already on edge over a possible recession. U.S. oil prices fell 3% to $82.82 on Tuesday, returning to levels last seen before rumors swirled about controversial OPEC+ production cuts. Analysts blamed the selloff on SPR News.
That oil price sell-off alone should help maintain a cap on gasoline prices, which analysts said were already falling without Biden taking further action.
While it’s difficult to pinpoint the exact impact of the SPR’s release on prices, oil industry veterans tell CNN that Biden’s strategy has been effective, helping to cushion the blow not only from the war in Ukraine, but also the lackluster OPEC+ offer. and American oil producers.
“Well done to them. They’ve done a terrific job of achieving their goal of lowering energy prices,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets.
Gasoline prices aren’t cheap — a gallon of regular gas averaged $3.87 nationally on Tuesday — but they’re well below the record high of $5.02 set in June.
“It’s been effective so far,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service, who noted that oil prices hadn’t hit all-time highs set in 2008. “You have to credit the SPR for that. The administration is laser-focused on the essence.
Kloza said he thinks there’s a more than 50/50 chance of gasoline prices going back down to their recent low of $3.67 a gallon. But rather than credit American policy, quoted by Kloza market forces, recession fears and the re-opening of refineries sidelined for maintenance.
“I don’t think they need to do anything until 2023. The market does most of the work for the White House,” Kloza said. “I think gasoline is destined to go down.”
It is not lost on oil market watchers that this latest SPR sales announcement comes just weeks before voters head to the polls ahead of the critical midterm elections.
“Given that we are only weeks away from the midterm elections and the OPEC cut, the Biden administration is trying to ensure that energy prices are not a priority,” said Andy Lipow, president of consulting firm Lipow Oil Associates.
But Lipow noted frustration in the oil industry that despite complaints about high energy prices, SPR publications have done “nothing to encourage additional oil production.”
Not only that, but Biden’s aggressive emergency releases have diminished the SPR, potentially limiting the government’s ability to respond to future shocks.
The reserve is not a bottomless oil well. It’s more of a rainy day fund and each release leaves less oil for the next crisis, whatever it is and when it happens.
That’s why the administration plans to detail efforts to fill the emergency reserve, setting an important marker for market participants given the scale of federal action over the past six months.
Biden will announce that the administration intends to buy back crude oil for the emergency reserve when prices are at or below between $67 and $72 a barrel.
The senior official said this will be “an important signal for producers” by helping to “moderate and stabilize” prices, not just when they are going up, but when they are down.
The plan also serves to counter criticism of the unprecedented scale of Biden’s reserve releases, which officials say underscores the administration’s intent to fill when market conditions make it most advantageous.
“We consider the SPR to be an incredibly important national security asset and we want to ensure that it serves its purpose in the future,” the official said, noting that it is still the biggest reserve in the world. world.
Despite recent emergency sales, the SPR still holds more than 400 million barrels of oil, considerable firepower that could be used in the months to come to respond to the disruption caused by the war in Ukraine.
“400 million barrels is a lot of barrels,” the official said.
Kloza, the OPIS analyst, said he was not concerned about the decline in SPR in part because more than decades ago, the United States and Canada have the ability to increase strongly production, if necessary (and if they are incentivized by higher prices).
“Sometimes reservations get archaic,” Kloza said. “I wouldn’t care until it got a little lower.”
– CNN’s Alison Kosik contributed to this report
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