Fighting gas prices, US releases 50 million barrels of oil – The Mercury News

By JOSH BOAK and COLLEEN LONG

WASHINGTON (AP) – On Tuesday, President Joe Biden ordered 50 million barrels of oil released from the United States Strategic Reserve to help reduce energy costs, in coordination with other major energy-consuming nations, including India, Britain and China.

The US action is aimed at the global energy markets, but also at US voters, who are coping with higher inflation and rising prices ahead of Thanksgiving and winter holiday travel. Gas prices are around $ 3.40 per gallon. gallon, more than 50% higher than a year ago, according to the American Automobile Association.

The government will start moving barrels on the market in mid to late December.

But the action will hardly immediately bring gasoline prices significantly down as families begin to travel for the holidays. Gasoline usually responds with a delay to changes in oil prices, and administration officials suggested this is one of several steps toward ultimately bringing costs down.

Oil prices had fallen in the days leading up to the announced withdrawals, a sign that investors were anticipating measures that together could bring 70 million to 80 million barrels of oil to global markets. But in trading Tuesday morning, prices rose nearly 2% instead of falling.

The market expected 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,” Galimberti said. “So once it’s stopped, then if demand continues to be above supply, as it is right now, then you’re back to square one.”

Shortly after the US announcement, India said it would release 5 million barrels from its strategic reserves. And the British government confirmed that it will release up to 1.5 million barrels from its warehouse. Japan and South Korea are also participating. Administration officials say it is the largest coordinated release from global strategic reserves.

Prime Minister Boris Johnson’s spokesman Max Blain said it was “a sensible and measured step to support global markets” during the pandemic recovery. Blain added that UK companies will be authorized but not forced to participate in the release.

The actions of the United States and others also risk retaliation from the Gulf nations, especially Saudi Arabia, and Russia. Saudi Arabia and other Gulf countries have made it clear that they intend to control supply to keep prices high for the time being.

As word spread in recent days of an impending joint release from US and other countries’ reserves, there were warnings from OPEC interests that these countries could react in turn and reject promises to increase supplies in the coming months.

Biden has struggled to reshape much of his economic agenda around the inflation issue, saying his recently adopted $ 1 trillion infrastructure package will reduce price pressures by making it more efficient and cheaper to transport goods.

Republican lawmakers have hammered the administration for inflation reaching a 31-year high in October. The consumer price index rose 6.2% from a year ago – the biggest 12-month jump since 1990.

Senate Republican leader Mitch McConnell tore into the White House in a speech last week, saying the victims of higher prices were middle-class Americans.

“The three biggest drivers behind the staggering 6.2% inflation we recorded last month were housing, transportation and food,” the Kentucky senator said. “It’s not luxury, they are essential, and they occupy a much larger share of families’ budgets from the middle class and down.”

The Strategic Petroleum Reserve is an emergency stockpile to maintain access to oil in the event of natural disasters, national security issues and other events. The reserves are maintained by the Department of Energy and stored in caves created in salt domes along the Texas and Louisiana Gulf Coast. There are about 605 million barrels of oil in the reserve.

“When we emerge from an unprecedented global economic downturn, oil supply has not kept pace with demand, forcing working families and businesses to pay the price,” Energy Minister Jennifer Granholm said in a statement. “This action underscores the President’s commitment to using the tools available to reduce the cost to working families and to continue our economic recovery.”

The Biden administration has argued that the reserve is the right tool to help alleviate the supply problem. Americans spent an average of 20.7 million barrels a day during September, according to the Energy Information Administration. This means that the release is almost equivalent to about two and a half days of extra supply.

The pandemic raged the energy markets. When the closures began in April 2020, demand collapsed and futures prices of oil became negative. Energy traders did not want to be stuck with crude oil that they could not store. But as the economy recovered, prices soared to a seven-year high in October.

US production has not recovered. Figures from the Energy Information Administration indicate that domestic production averages around 11 million barrels per day, down from 12.8 million before the pandemic started.

Republicans have also seized on Biden’s efforts to minimize drilling and support renewable energy as a cause of declining production, although more market dynamics are at stake as fossil fuel prices are higher around the world.

Meanwhile, Biden and administration officials insist that draining more oil from the reserve does not conflict with the president’s long-term climate goals because this is a short-term solution to address a specific problem, while climate policies are a long-term response for decades.

They argue that because they are pushing to increase renewable energy, there will ultimately be less dependence in the United States on fossil fuels. But it’s a politically convenient argument – in simple terms, higher prices reduce consumption, and significantly higher gasoline prices can force Americans to become less dependent on fossil fuels.

“The only long-term solution to rising gas prices is to continue our march to eliminate our dependence on fossil fuels and create a robust green energy economy,” Senate Democratic leader Chuck Schumer said in support of the release.

The decision in the White House comes after weeks of diplomatic negotiations. Biden and Chinese President Xi Jinping spoke of steps to discourage tight petroleum supplies at their virtual meeting earlier this month and “discussed the importance of taking action to address global energy supplies,” according to the White House.

The U.S. Department of Energy will make the oil available from the strategic petroleum reserve in two ways; 32 million barrels will be released in the next few months and will return to the reserve in the coming years, the White House said. An additional 18 million barrels will be part of a sale of oil approved by Congress.

White House Press Secretary Jen Psaki said Monday night that the White House would keep an eye on those oil companies that “have made record profits” and will keep an eye on pricing, “when there is a supply of oil or the price of oil falls, and the price of gas will not fall. “

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AP writers Cathy Bussewitz and Charles Sheehan contributed from New York, Jill Lawless from London and Matthew Daly and Ellen Knickmeyer from Washington.

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