Biden oil move aims to cut gas prices 'fairly significantly'

Apr 04, 2022 09:15:45 AM
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Biden oil move aims to cut gas prices 'fairly significantly'

President Joe Biden is ordering the release of 1 million barrels of oil per day from the nation’s strategic petroleum reserve for six months in a bid to control energy prices

March 31, 2022, 8:45 PM

6 min read

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Biden oil move aims to cut gas prices

Biden oil move aims to cut gas prices

The Associated Press

President Joe Biden speaks about status of the country's fight against COVID-19 in the South Court Auditorium on the White House campus, Wednesday, March 30, 2022, in Washington. (AP Photo/Patrick Semansky)

WASHINGTON -- President Joe Biden on Thursday ordered the release of 1 million barrels of oil per day from the nation’s strategic petroleum reserve for six months, a bid to control energy prices that have spiked after the United States and allies imposed steep sanctions on Russia over its invasion of Ukraine.

The president said it was not known how much gasoline prices could decline as a result of his move, but he suggested it might be “anything from 10 cents to 35 cents a gallon.” Gas is averaging about $4.23 a gallon, compared with $2.87 a year ago, according to AAA.

“The bottom line is if we want lower gas prices we need to have more oil supply right now,” Biden said. “This is a moment of consequence and peril for the world, and pain at the pump for American families.”

The president also wants Congress to impose financial penalties on oil and gas companies that lease public lands but are not producing. He said he will invoke the Defense Production Act to encourage the mining of critical minerals for batteries in electric vehicles, part of a broader push to shift toward cleaner energy sources and reduce the use of fossil fuels.

The actions show that oil remains a vulnerability for the U.S. Higher prices have hurt Biden’s approval domestically and added billions of oil-export dollars to the Russian government as it wages war on Ukraine.

Tapping the stockpile would create pressures that could reduce oil prices, though Biden has twice ordered releases from the reserves without causing a meaningful shift in oil markets. Biden said Thursday he expects gasoline prices could drop “fairly significantly.”

Part of Biden's concern is that high prices have not so far coaxed a meaningful jump in oil production. The planned release is a way to increase supplies as a bridge until oil companies ramp up their own production, with administration officials estimating that domestic production will grow by 1 million barrels daily this year and an additional 700,000 barrels daily in 2023.

The markets reacted quickly with crude oil prices dropping about 6% in Thursday trading to roughly $101 a barrel. Still, oil is up from roughly $60 a year ago, with supplies failing to keep up with demand as the world economy has begun to rebound from the coronavirus pandemic. That inflationary problem was compounded by Russian President Vladimir Putin's invasion of Ukraine, which created new uncertainties about oil and natural gas supplies and led to retaliatory sanctions from the U.S. and its allies.

Stewart Glickman, an oil analyst for CFRA Research, said the release would bring short-term relief on prices and would be akin to “taking some Advil for a headache.” But markets would ultimately look to see whether, after the releases stop, the underlying problems that led to Biden's decisions remain.

“The root cause of the headache is probably still going to be there after the medicine wears off,” Glickman said.

Biden has been in talks with allies and partners to join in additional releases of oil, such that the world market will get more than the 180 million barrels total being pledged by the U.S.

Americans on average use about 21 million barrels of oil daily, with about 40% of that devoted to gasoline, according to the U.S. Energy Information Administration. That total accounts for about one-fifth of total global consumption of oil.

Domestic oil production is equal to more than half of U.S. usage, but high prices have not led companies to return to their pre-pandemic levels of output. The U.S. is producing on average 11.7 million barrels daily, down from 13 million barrels in early 2020.

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