(WASHINGTON) — President Joe Biden on Tuesday ordered 50 million barrels of oil released from America’s strategic reserve to help bring down energy costs, in coordination with other major energy consuming nations, including India, the United Kingdom and China.
This U.S. move is not only aimed at the global energy market, but it also helps Americans cope with rising inflation ahead of Thanksgiving holiday travel and other holidays. The American Automobile Association reports that gasoline prices are now at $3.40 per gallon. This is more than 50% above the level a year ago.
“While our combined actions will not solve the problems of high gas prices overnight, it will make a difference,” Biden promised in remarks. “It will take time, but before long you should see the price of gas drop where you fill up your tank.”
Mid- to late December will see the government begin moving barrels to the market. Oil prices change often at a slower rate than gasoline, so administration officials said that the government will begin to move barrels into the market in mid-December.
The oil price had fallen in days before the announcement of withdrawals. It was an indication that investors anticipated moves that could see global markets receive between 70 and 80 million barrels. Prices rose nearly 2% on Tuesday morning, instead of dropping.
Claudio Galimberti senior vice president of oil markets at Rystad Energie, Claudio Galimberti said that traders were expecting the news.
“The problem is that everybody knows that this measure is temporary,” Galimberti said. “So once it is stopped, then if demand continues to be above supply like it is right now, then you’re back to square one.”
Soon after the U.S. announced, India stated that it would be releasing 5 million barrels of its strategic reserves. British officials confirmed that it would release as many as 1.5 million barrels of its stockspile. Japan and South Korea will also participate. U.S. officials say it’s the biggest coordinated release from global strategic reserves.
Prime Minister Boris Johnson’s spokesman, Max Blain, said it was “a sensible and measured step to support global markets” during the pandemic recovery. Blain stated that British companies would be allowed but not required to take part in the release.
US actions and those of others could be countered by Gulf countries, including Saudi Arabia and Russia. Saudi Arabia, along with other Gulf nations have stated that they will control the supply in order to maintain high prices for now.
As word spread in recent days of a coming joint release from U.S. and other countries’ reserves, there were warnings from OPEC interests that those countries may respond in turn, reneging on promises to increase supplies in coming months.
Wyoming Sen. John Barrasso was among Republicans who criticized Biden’s announcement. Biden’s announcement was criticized by the No. The No. 3 Senate Republican stated that the core issue was the Biden Administration’s restrictions on domestic production.
“Begging OPEC and Russia to increase production and now using the Strategic Petroleum Reserve are desperate attempts to address a Biden-caused disaster,” Barrasso said. “They’re not substitutes for American energy production.”
Biden is trying to change much of his economic agenda to address inflation. He claims that the $1 trillion infrastructure package he recently passed will lower prices by transporting goods more efficiently and at a cheaper price.
Republican legislators have hit the government for inflating to a 31 year high in October. The consumer price index soared 6.2% from a year ago — the biggest 12-month jump since 1990.
The Strategic Petroleum Reserve, an emergency reserve that preserves oil access in the event of natural disasters or national security concerns, is maintained by the Energy Department. The Energy Department maintains the reserves. They are kept in caverns in salt domes located along both the Texas and Louisiana Gulf Coasts. The reserve contains approximately 605 million barrels worth of petroleum.
Biden Administration argues that the reserve can be used to address the shortage problem. According to the Energy Information Administration, Americans consumed an average 20.7 million barrels per day in September. The release is close to equivalent of about two-and a half days’ additional supply.
“Right now, I will do what needs to be done to reduce the price you pay at the pump,” Biden said. “From the middle class, and working families that are spending much too much and it’s a strain … you’re the reason I was sent here to look out for you.”
Biden claimed that the White House was investigating potential price gouging from gas companies, who squeeze customers to make money on the low oil prices.
Energy markets were impacted by the coronavirus pandemic. Oil futures prices fell as a result of the closures that began in April 2020. The energy traders didn’t want to be stuck with crude oil they couldn’t store. However, as the economy improved, oil prices rose to an all-time high of seven years in October.
U.S. output has not improved. Energy Information Administration data show that the average domestic oil production has fallen to 11 million barrels per day, compared with 12.8 million when the pandemic began.
Republicans have also seized on Biden’s efforts to minimize drilling and support renewable energy as a reason for the decreased production, though there are multiple market dynamics at play as fossil fuel prices are higher around the world.
Biden and administration officials insist that tapping more oil from the reserve does not conflict with the president’s long-term climate goals, because this short-term fix meets a specific problem, while climate policies are a long-term answer over decades.
They argue that the administration’s push to boost renewable energy will eventually mean less dependence in the U.S. on fossil fuels. But that’s a politically convenient argument — in simple terms, higher prices reduce usage, and significantly higher gasoline prices could force Americans into less reliance on fossil fuels.
“The only long term solution to rising gas prices is to continue our march to eliminate our dependence on fossil fuels and create a robust green energy economy,” Senate Democratic Leader Chuck Schumer said in support of the release.
After weeks of diplomatic negotiations, the White House has taken this decision. Biden and President Xi Jinping of China talked over steps to counter tight petroleum supplies in their virtual meeting earlier this month and “discussed the importance of taking measures to address global energy supplies,” according to the White House.
According to the White House the Department of Energy will release 32 million barrels of the Strategic Petroleum Reserve oil in the following months. In the future, it will also return the reserves in the years ahead. An additional 18 million barrels of oil will also be sold under the authorization of Congress.
AP reporters Cathy Bussewitz, Charles Sheehan and Jill Lawless contributed to this article from New York. Matthew Daly and Ellen Knickmeyer were from Washington.