US to release reserves in effort to calm gas prices
WASHINGTON — President Joe Biden on Tuesday ordered a record-setting 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.
The U.S. action is aimed at global energy markets, but also at helping Americans coping with higher inflation and rising prices ahead of Thanksgiving and winter holiday travel. Gasoline prices are at about $3.40 a gallon, more than 50% higher than a year ago, according to the American Automobile Association.
“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.”
The government will begin to move barrels into the market in mid-to-late December. Gasoline usually responds at a lag to changes in oil prices, and administration officials suggested this is one of several steps toward ultimately bringing down costs.
‘Temporary’ measure: Oil prices had dropped in the days ahead of the announced withdrawals, a sign that investors were anticipating the moves that could bring a combined 70 million to 80 million barrels of oil onto global markets. But in Tuesday morning trading, prices shot up nearly 2% instead of falling.
The market was expecting the news, and traders may have been underwhelmed when they saw the details, said Claudio Galimberti, senior vice president for oil markets at Rystad Energy.
“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.”
Shortly after the U.S. announcement, India said it would release 5 million barrels from its strategic reserves. The British government confirmed it will release up to 1.5 million barrels from its stockpile. Japan and South Korea are also participating. 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 added that British companies will be authorized but not compelled to participate in the release.
The actions by the U.S. and others also risk counter moves by Gulf nations, especially Saudi Arabia, and by Russia. Saudi Arabia and other Gulf countries have made clear they intend to control supply to keep prices high for the time being.
The coronavirus pandemic roiled energy markets. As closures began in April 2020, demand collapsed and oil futures prices turned negative. Energy traders did not want to get stuck with crude that they could not store. But as the economy recovered, prices jumped to a seven-year high in October.
U.S. production has not fully recovered. Energy Information Administration figures indicate that domestic production is averaging roughly 11 million barrels daily, down from 12.8 million before the pandemic started.