U.S., Other Countries to Tap Strategic Oil Reserves in Bid to Tame Inflation
Category: News & PoliticsVia: vic-eldred • 2 weeks ago • 7 comments
By: By Timothy Puko and Alex Leary
WASHINGTON—The U.S. and several other countries will tap their national strategic petroleum reserves, senior Biden administration officials said Tuesday, in an attempt to bring down gasoline prices that have become a big contributor to inflation.
Other countries participating in the release include China, India, Japan, South Korea and the U.K., the White House said. The U.S. will release 50 million barrels, officials said.
“The president stands ready to take additional action, if needed, and is prepared to use his full authorities working in coordination with the rest of the world to maintain adequate supply as we exit the pandemic,” the White House said in a statement.
Officials didn’t specify when they expect consumers to see lower prices at the pump, though they noted there is usually a lag between increased oil supplies and when retail prices fall. “We expect the industry to be passing through these savings to consumers as quickly as possible,” an official said.
Global benchmark Brent crude added 0.2%, trading at $79.91 Tuesday morning after the announcement.
The coordinated release would be the first one in a decade, and senior administration officials say it is intended to help supply an economy rebounding from the coronavirus pandemic. Global consumption is likely to average 100 million barrels a day in the final three months of the year, up 4.9% from the same period a year ago, according to Energy Department figures.
The last globally coordinated release came in 2011 when the U.S. and 27 other countries agreed to release 60 million barrels to replace some of 140 million in output lost as a result of three months of conflict in what would become Libya’s civil war.
India said it would release 5 million barrels of crude oil from its strategic petroleum reserve of around 38 million barrels. India consumes around 4 million barrels a day. The oil will be supplied to Indian refiners for local use.
“Depending on the necessity, we may consider releasing more stocks later,” an Indian government official said.
Japan’s chief government spokesman, Hirokazu Matsuno, said Monday that the government was considering releasing oil from its reserves, although it hasn’t made a final decision yet.
Tuesday’s announcement comes as gasoline and heating-oil prices have risen to their highest levels since 2014. White House officials have spent weeks debating limited options to respond, fearing political damage to President Biden, whose public approval rating has sunk amid inflation fears .
Gasoline prices have risen steadily over the 12 months since Mr. Biden’s election. Pump prices are up 61% from a year ago, with regular unleaded selling last week at an national average price of $3.40 a gallon, according to Energy Department data.
The administration didn’t cite emergency authority to support its decision to release oil from the reserve, and instead used a less-urgent authorization to provide short-term fixes that get more oil on the market in the immediate future.
Most of the 50 million barrels going out from the reserve—a total of 32 million—are part of exchanges designed just for a short-term boost to supply. Under this plan, the Energy Department will trade barrels in December with buyers who will agree to send barrels back to the government sometime between 2022 to 2024, to replenish the reserve later.
The other 18 million barrels of the release will come as part of a previously authorized sale from the reserve, which the Energy Department is now moving to do earlier than it had planned.
Congress has authorized a series of sales in recent years to raise money to pay for other spending, and senior administration officials say they have broad latitude on when to schedule those sales. The Energy Department said it would announce a new sales date on or after Dec. 17.
Last week, Mr. Biden called on the Federal Trade Commission to investigate whether oil-and-gas companies are participating in illegal conduct aimed at keeping gasoline prices high . Outside analysts expressed skepticism that the FTC would find enough evidence to substantiate Mr. Biden’s allegations.
This summer, the White House urged the Organization of the Petroleum Exporting Countries to increase output more than they had initially planned , contending that there wasn’t enough oil to meet demand as the global economy rebounds from the Covid-19 pandemic.
In an early November meeting, OPEC and its allied Russia-led producers decided to defy that pressure .
The White House then began exploring other options. The Wall Street Journal reported earlier this month that it had begun discussions with Asian and European countries about tapping their emergency stockpiles at the same time in a coordinated release to put more oil on the market.
There have been only three previous stockpile releases coordinated globally, all when oil or gasoline supplies were disrupted by war in major oil exporting countries or by Hurricane Katrina’s hit on the U.S. Gulf Coast’s oil industry in 2005.
Now, global oil output is about to rise , the International Energy Agency said last week.
President Biden is looking for broad coordination with other countries to make a bigger impact on markets, but his efforts fit in with those of other recent U.S. political leaders of both parties. A boom in U.S. oil production has changed the way U.S. leaders think about the stockpile, and for years now they have looked more aggressively at using it to address various problems.
The Trump administration considered a similar move in 2018 —before opting against it. And Congress has authorized several smaller sales in recent years.
Oil prices have plateaued in recent weeks as traders reacted to White House posturing. Since rising to a seven-year high of $84.65 a barrel on Oct. 26, U.S. crude futures are down 9.3%.
The U.S. Strategic Petroleum Reserve holds more than 600 million barrels of oil in four underground storage caverns, salt domes along the Texas and Louisiana coasts. Congress authorized its creation in 1975, in the wake of the Arab oil embargo, as a buffer against supply shocks from oil exporters, but energy markets have changed dramatically in recent years.
Resurgent U.S. oil production from fracking into shale has made political leaders less fearful of shortages and Congress has started draining the reserve as a way to raise cash to pay for tax cuts and other spending. Under congressional authorization, the Energy Department has run seven sales since 2017, unloading more than 60 million barrels, or about 8.6% of what had been in the reserve, according to department figures.
Those sales have been too small to roil energy markets, and analysts said any new release would have to be much larger to have a dramatic impact.
Asked about the impact on prices of a new reserve release, Stephen Nalley, the acting administrator of the U.S. Energy Information Administration, told a Senate committee last week, “Ultimately the amount of impact would be relatively short-lived. It would depend on how much was released.”