President Joe Biden on Tuesday, in coordination with other major energy consumers including India, the UK and China, released 50 million barrels of oil from America’s strategic reserve to help drive down energy bills.
The US action is aimed at global energy markets, but also US voters struggling with higher inflation and soaring prices ahead of Thanksgiving and winter vacation travel.
Gasoline prices are around $ 3.40 per gallon, according to the American Automobile Association, more than 50% higher than a year ago.
In Texas, the nationwide Thanksgiving average of $ 3 a gallon for regular unleaded fuel is the highest in eight years, according to the AAA Texas weekend gas meter. That’s five cents less than last week, but $ 1.21 more than last year.
Of the major Texas metro areas, El Paso drivers pay the most at $ 3.22 per gallon, while Amarillo drivers pay the least at $ 2.85. AAA expects 3.9 million Texans to travel at least 50 miles on Thanksgiving.
“The price of crude oil is about 50 to 60% of what consumers pay at the pump, so lower oil prices should translate into better gasoline prices for drivers,” said Daniel Armbruster, spokesman for AAA Texas.
Here are gasoline prices on Tuesday in major Texas cities.(AAA Texas)
The government will begin putting barrels on the market in mid to late December.
However, the action is unlikely to cut gasoline prices significantly right away as families go on vacation. Gasoline usually has a delay in responding to changes in oil prices, and administrative officials suggested that this is one of several steps that can ultimately be taken to bring costs down.
Oil prices had fallen in the days leading up to the announced redemptions, a sign that investors were anticipating moves that could add 70 to 80 million barrels of oil to world markets. But in Tuesday morning trading, prices shot up almost 2% instead of falling.
The market was expecting the news and traders may have been overwhelmed when they saw the details, said Claudio Galimberti, senior vice president of oil markets at Rystad Energy.
“The problem is that everyone knows this measure is temporary,” said Galimberti. “So once it stops, if demand continues to outpace supply, as it is now, you are back in first place.”
Shortly after the US announcement, India announced it would release 5 million barrels from its strategic reserves. And the UK government has confirmed it will release up to 1.5 million barrels from its inventory. Japan and South Korea are also participating. Government officials say it is the largest coordinated release from global strategic reserves.
Prime Minister Boris Johnson spokesman Max Blain said it was “a sensible and measured move in support of global markets” during the pandemic recovery. Blain added that UK businesses will be authorized, but not compelled, to participate in the release.
The actions of the US and others also risk counter-movements by the Gulf states, especially Saudi Arabia, and Russia. Saudi Arabia and other Gulf states have made it clear that they want to control supply in order to keep prices high for the time being.
As an impending joint release of US and other countries’ reserves has spread in the past few days, there have been warnings from OPEC interests that these countries may react on their part and break their promises to increase supplies in the coming months.
Biden has sought to reshape much of his economic agenda around inflation, saying his recently passed $ 1 trillion infrastructure package will ease price pressures by making the transportation of goods more efficient and cheaper.
Republican lawmakers hammered the government for inflation to hit a 31-year high in October. The consumer price index rose by 6.2% compared to the previous year – the largest twelve-month jump since 1990.
Senate Republican chairman Mitch McConnell stormed the White House in a speech last week saying the victims of the higher prices were middle-class Americans.
“The three biggest drivers of the staggering 6.2% inflation we recorded last month were housing, transportation and food,” said the Kentucky Senator. “This is not a luxury, but the essentials, and from the middle class onwards they take up a much larger part of the family budget.”
The Strategic Petroleum Reserve is an emergency repository to secure access to oil in the event of natural disasters, national security issues, and other incidents. The reserves, managed by the Department of Energy, are stored in caves created in salt domes along the Gulf coasts of Texas and Louisiana. There are around 605 million barrels of oil in the reserve.
“With an unprecedented global economic downturn behind us, oil supplies have not kept pace with demand, forcing working families and businesses to pay the price,” Energy Secretary Jennifer Granholm said in a statement. “This move underscores the President’s commitment to using the tools available to cut costs for working families and continue our economic recovery.”
The Biden government has argued that the reserve is the right tool to help alleviate the supply problem. According to the Energy Information Administration, Americans consumed an average of 20.7 million barrels a day in September. This means that the release equates to approximately two and a half days of additional supply.
The pandemic has shaken the energy markets. When closings began in April 2020, demand collapsed and oil futures prices turned negative. Energy traders didn’t want to get stuck with crude oil they couldn’t store. But as the economy recovered, prices jumped to a seven-year high in October.
US production has not recovered. Energy Information Administration figures show domestic production averages around 11 million barrels daily, up from 12.8 million barrels before the pandemic began.
Republicans have also seized Biden’s efforts to minimize drilling and promote renewables as the reason for the decreased production, although several market dynamics are at play as fossil fuel prices are higher around the world.
Meanwhile, Biden and government officials insist that unlocking more oil from the reserves does not run counter to the president’s long-term climate goals, as it is a short-term solution to a specific problem, while climate policy is a long-term answer for decades.
They argue that the US’s dependence on fossil fuels will ultimately be less as they push to promote renewable energy. But that’s a politically convenient argument – in simple terms, higher prices reduce consumption, and significantly higher gasoline prices could force Americans to become less dependent on fossil fuels.
“The only long-term solution to rising gas prices is to continue our march to end our dependence on fossil fuels and create a resilient green energy economy,” said Democratic Senate Chairman Chuck Schumer in support of the release.
The White House decision comes after weeks of diplomatic negotiations. In their virtual meeting earlier this month, Biden and President Xi Jinping of China spoke about steps to tackle oil scarcity and “discussed the importance of measures to combat global energy supplies,” according to the White House.
The US Department of Energy will provide oil from the Strategic Petroleum Reserve in two ways; 32 million barrels will be released over the next few months and will return to the reserve in the coming years, the White House said. Another 18 million barrels will be part of a Congress-approved oil sale.
White House press secretary Jen Psaki said Monday night the White House will keep an eye on oil companies that have “made record profits” and watch out for price gouging “when there is a supply of oil or the price of oil goes down and the price of gas goes down does not sink. “
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