The US government will release 50 million barrels of oil from its strategic petroleum reserves into the market in an effort to reduce the price of crude oil and gasoline.
The White House said Tuesday that the Energy Department would release millions of barrels of stored oil “to address the mismatch between demand … and supply.”
The US Strategic Petroleum Reserve currently holds more than 600 million barrels of crude oil to ensure supplies during unforeseen natural disasters or other national security events.
The reserves are stored in caves formed in salt domes along the Texas and Louisiana Gulf Coasts.
More than 32 million barrels will be released over the next few months, while there will be an acceleration of the release of another 18 million barrels that was already planned beyond that.
- Why Natural Gas Prices Have Reached Their Highest Levels in Years
“As we emerge from an unprecedented global economic shutdown, oil supply has not kept pace with demand, leaving working families and businesses at a price,” Energy Secretary Jennifer Granholm said in a statement. “This action underscores the president’s commitment to using the tools available to reduce costs for working families and to continue our economic recovery.”
The goal is to bring down the high prices
While US President Joe Biden aims to slightly lower the price of energy amid high inflation, the US is not the only country feeling it. Hence, the move will be matched by several other countries including India, Japan, China, South Korea and the United Kingdom, which have similar reserves.
All told, about 70 million barrels of oil could be released.
- Brace yourself – gas prices are breaking records as global energy crisis hits Canada
- Why the world is facing a global energy crisis
“It’s our understanding that the Administration wants to keep prices below $80” [per barrel] Helima Croft, RBC commodity analyst said, and believes they have the potential to make another release of similar magnitude through the exchange mechanism. “They are focused on lowering gasoline and diesel prices ahead of the holidays, but also see it as part of a comprehensive strategy to address inflationary pressures and supply chain challenges.”
It is a response to a move last month by the oil cartel known as OPEC and its allies to be cautious about turning on oil spigots.
Analyst Craig Erlam with foreign exchange firm Oanda said the barrel-emptying move by Biden and allies was “more as a warning to OPEC+ not to ignore consumer countries.”
“These countries have huge reserves, but they are intended for emergencies, not to start a price war with producers every time they get a little too high,” he said. “The question now is how OPEC+ will respond as the group can easily wipe out any gains from the release by slowing growth in its planned monthly output.”