Since Russia’s invasion of Ukraine, President Biden has overseen the largest-ever sale of oil from the Strategic Petroleum Reserve to lower prices at the gas pump.
After releasing 160 million barrels of oil since March, more than a quarter of the stockpile, the Energy Department cut inventories to their lowest level in four decades. Some oil experts say continued drawdown could test the country’s energy security.
But even as oil prices have fallen sharply from their peak, the administration is not ready to start replenishing the reserve. Instead of ending the release in October as planned, it decided to extend it at a lower price for at least another month.
“It’s a risky policy,” said Kevin Book, managing director of ClearView Energy Partners, a consulting firm in Washington. “This policy can only last until supplies run out, and it would take years to restock.”
The drawdown of the reserve this year was meant to compensate for a supply shortfall due to Western sanctions against Russia, a major oil and gas exporter. Some experts predicted that oil prices would rise well above $150 a barrel. But while prices rose immediately after the February invasion, the U.S. benchmark, West Texas Intermediate, fell to around $82 a barrel.
Gasoline prices fell from a national average of just above $5 a gallon regular in June to $3.68 last week, according to the AAA auto club; they’ve risen about 10 cents since then. Energy experts estimate that the released reserves have reduced the price of gasoline by 40 cents.
“SPR pumping has probably been the single most important factor in driving down oil prices, and thus gasoline prices, over the past three months,” said Sarah A. Emerson, president of ESAI Energy, a consulting firm, and director of Chesapeake Energy. oil and gas producer.
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The rest of the drop in oil and gasoline prices can be explained by the global economic slowdown, the Covid-19 lockdown in China and Russia’s success in diverting oil exports from Europe to China and India. The International Energy Agency initially said Russia’s daily oil production could fall by as much as three million barrels, but Russian exports fell by just 400,000 barrels a day from a global market of 100 million barrels.
Industry executives say that while reserve sales have helped lower prices, they are a short-term cure and have done nothing to encourage new supply.
“I’m not sure it’s going to have any long-term impact,” said Sean Strawbridge, executive director of the Port of Corpus Christi Authority, which manages America’s largest oil export port. “What I do know is that if the federal government’s intention is to replenish the reserves to the intended inventory, it will take an extremely long time.
Adding to the reserve could even boost prices as it boosts demand and boosts drilling at a time of growing climate change concerns.
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For now, however, lower gas prices have helped moderate inflation and boosted Democrats’ prospects in the election campaign. The reservation still has roughly 420 million barrels in its underground caverns. With a maximum capacity of 4.4 million barrels per day, it would take 95 days to deplete the entire supply during a crisis.
The country’s energy profile has changed radically since 1975, when Congress established a reserve in case of supply interruptions due to natural disaster or war or embargo in the Middle East. Gas lines from the 1973-74 Arab oil embargo were fresh in the minds of lawmakers and voters.
Since then, US oil production has grown enormously, transforming the country from a vulnerable fuel importer to a major energy exporter. Vehicles are now more efficient and the transport of the future is leaning towards batteries and eventually hydrogen.
The reserve has been used to stabilize supplies on several occasions, including during the Iraq-Kuwait crisis of 1990-91, Hurricane Katrina in 2005, and the Middle East disruption of the Arab Spring in 2011.
Several past presidents have released oil from the reserve during election periods, but they have always maintained that the purpose was to boost supply, not explicitly reduce prices.
“The mantra used to be, ‘We’re not here to manage markets, we’re here to manage physical scarcity,'” said Mark Finley, an energy economist at Rice University.
In contrast, the current administration promoted the exemption expressly as a relief to consumers.
“The bottom line is, if we want lower gas prices, we have to have more oil supplies now,” Mr. Biden said when he announced the easing policy in March.
A new test for global oil markets will come when Europe is scheduled to ban imports of most Russian crude on Dec. 5 and Russian refined products on Feb. 5. The question remains how strictly the sanctions will be enforced, especially if a cold winter looms. energy shortage in Europe.
The European Union embargo could remove 2.4 million barrels of Russian oil per day from the market. If Western countries impose a price cap on their oil, as some officials have threatened, the Russians could retaliate by halting oil exports.
Many economists say the 20 percent drop in oil prices over the past two months may soon be reversed. JP Morgan recently predicted that global benchmark Brent crude, now at about $88 a barrel, would rise above $100 in the fourth quarter.
In announcing that 10 million barrels of oil a day would be sold from the reserve in November, administration officials said they would then be guided by oil demand and supply in global markets. There appear to be no immediate plans to replenish the reserve.
Andrew Lipow, president of Lipow Oil Associates, a consulting firm in Houston, said the spills were only a temporary measure because they did nothing to increase energy production. “My concern is that if the sale of strategic oil reserves stops, how will the market replace this supply?” he said.
However, he added that the continued drawdown of reserves creates its own set of risks. “Will there be enough reserves in the Strategic Petroleum Reserve to cover future supply disruptions?” he asked.