The White House announced it will release 50 million barrels of crude oil in an effort to lower gas prices.
“Over the last 18 months, the COVID-19 pandemic forced an unprecedented global economic shutdown. As the world is re-opening from a near economic standstill, countries across the globe are grappling with the challenges that arise as consumer demand for goods outpaces supply,” the White House said in a briefing. “American consumers are feeling the impact of elevated gas prices at the pump and in their home heating bills, and American businesses are, too, because oil supply has not kept up with demand as the global economy emerges from the pandemic.”
By releasing the oil, which is part of the Strategic Petroleum Reserve, the government hopes to “address the mismatch between demand exiting the pandemic and supply.”
Managed by the Department of Energy, 32 million barrels will be exchanged over the next several months. Eventually, the exchanged oil will be returned to the Strategic Petroleum Reserve. The remaining 18 million barrels will be used as part of a sale previously authorized by Congress.
The announcement was made in conjunction with China, India, South Korea and the U.K.
According to Market Watch, “oil initially extended a decline after the White House announcement, but then turned higher. West Texas Intermediate crude for January delivery was up $1.26, or 1.6%, at $78.01 a barrel on the New York Mercantile Exchange. January Brent crude the global benchmark, was up $1.62, or 2%, at $81.32 a barrel on ICE Futures Europe.”
Robbie Fraser, global analytics and research manager at Schneider Electric, told the outlet, “While the volume itself warrants attention — 50 million barrels could supply roughly half the world for a day — the most significant part of the announcement though is the coordination among some of the world’s leading consumers and importers as a sort of temporary challenge to OPEC+’s command on the market.”
The Independent Petroleum Association of America (IPAA) has vehemently opposed the move, contending that instead of “manipulate[ing] gasoline prices” by using the Strategic Petroleum Reserve, the Biden administration should deregulate the industry.
“When the Biden administration signals that it wants to incentivize a shift away from oil and other fossil fuels, and then it takes actions like we’ve seen – freezing oil and natural gas leasing on federal lands, killing the largest U.S.-Canadian pipeline project in Keystone XL, considering that the oil and gas industry be taxed more so and differently than every other U.S. manufacturing sector – these add uncertainty about whether long-lived investments in fossil fuels will be worthwhile, which is completely the wrong signal for the industry to be able to meet consumer demand in the immediate and near future,” said Dean Foreman, Chief Economist for the American Petroleum Institute.
“Market interference makes us all more vulnerable and is counterproductive to long-term adjustments in the marketplace. A better solution is to enhance, rather than hindering, America’s leadership in natural gas and oil production,” IPAA said in a statement on Nov. 18.
The average price of a gallon of gas in the United States is currently $3.40, per AAA. Last year, one gallon of gas cost, on average, $2.11.