U.S. Joins With China, Other Nations in Tapping Oil Reserves
The U.S. and other countries will tap their national strategic petroleum reserves in an attempt to bring down gasoline prices that have become a sore spot with motorists and a big contributor to inflation, President Biden said Tuesday.
He predicted that the added supply will lead to lower prices, but wholesale crude prices on financial markets rose after Tuesday’s announcement.
Analysts questioned whether government releases are big enough to cover surging demand, and said the release might have been aimed largely at showing the White House’s resolve to do everything it can to tame inflation.
“We see the timing of today’s move as a clear Biden Administration effort to send a signal to American drivers (and voters) that the White House is responsive to economic pain,” analysts at ClearView Energy Partners LLC said in a research note.
The release of reserves had been anticipated for weeks as the administration grappled with how to address rising prices for gasoline, groceries and other consumer products that have clouded prospects for Mr. Biden’s agenda.
Speaking from the White House Tuesday afternoon, Mr. Biden noted wages are rising and disposable income has grown for many Americans.
“But we still face challenges in our economy,” he said, citing a disrupted supply chain and higher food prices. He touted steps such as a push to operate ports in California around the clock and assurances from major retailers that shelves will be stocked.
Rising gas prices are a problem “not just in the United States but around the world,” the president said. “We’re taking action.”
Mr. Biden last week called on the Federal Trade Commission to investigate whether oil and gas companies were illegally keeping gas prices high, a request that some observed was part of the standard playbook for presidents facing political fallout from rising gas prices.
White House officials told reporters early Tuesday that five countries— China, India, Japan, South Korea and the U.K.—would participate in a coordinated release of oil reserves.
Speaking to reporters later Tuesday, however, Mr. Biden said China “may” participate in the release. Energy Secretary Jennifer Granholm said later that China would make its own announcement on a release. The Chinese embassy didn’t respond to a request for comment.
The Biden administration said in total it would put 50 million barrels of oil from U.S. government stockpiles onto world markets in the coming weeks.
The six countries combined are likely to put roughly 65 million to 70 million barrels from government stockpiles onto world markets, according to a tally by RBC Capital Markets.
That figure is only a little more than half of the world’s daily consumption, which the Energy Department estimates will surpass 100 million barrels in the final three months of 2021. That rate would put world consumption nearly 5% higher than it was a year ago as the recovery from the pandemic has steadily driven consumption higher.
Former President Barack Obama was the last president to engineer a coordinated release of strategic reserves with other countries, assembling a group that put 60 million barrels on the market in 2011 as a brewing civil war disrupted supplies from Libya, a major exporter.
The Trump administration considered selling oil when prices rose in 2018 before opting against it, and later failed in a push to get congressional authorization to buy more oil to stabilize crude markets when they plummeted at the beginning of the pandemic.
Even if crude prices do fall, relief for consumers may be short-lived as demand is expected to keep rising into next year as the global economy continues its recovery from the Covid-19 pandemic.
“For drivers wondering if gasoline prices will get lower … the reality is that this may not happen at all, or only with a significant lag time,” Bjørnar Tonhaugen, head of oil market research at consulting firm Rystad Energy, said in a research note.
In recent months, the White House had urged the Organization of the Petroleum Exporting Countries and its allies to increase output more than they had initially planned, contending that there wasn’t enough oil to meet demand as the global economy rebounds from the pandemic.
In an early November meeting, OPEC and its allied Russia-led producers decided to defy that pressure, leaving White House officials to home in on tapping the reserve as their next best option.
Sen. John Barrasso (R., Wyo.) said that Tuesday’s release “will not fix the problem” and that the Biden administration needs to focus instead on boosting domestic production.
“Begging OPEC and Russia to increase production and now using the Strategic Petroleum Reserve are desperate attempts” to address the problem, Mr. Barrasso said. “They’re not substitutes for American energy production.”
Senate Majority Leader Chuck Schumer (D., N.Y.) took the opposite view, calling the release “good news for American families.”
“Tapping the SPR will provide much-needed temporary relief at the pump and will signal to OPEC that they cannot recklessly manipulate supply to artificially inflate gas prices,” Mr. Schumer said.
Mr. Schumer said the long-term solution is “to eliminate our dependence on fossil fuels and create a robust green energy economy.”
While U.S. reserve releases have become more common, this would be the largest ever and the first coordinated with other countries in a decade, according to the Energy Department.
Analysts also said this was the first time the U.S. has coordinated such a release with China and India. Prior efforts were pursued with more European allies and sometimes through the International Energy Agency.
Rising gasoline prices have put pressure on political leaders globally.
In the U.S., Democrats are entering next year’s midterm elections—which are typically tough for the party that controls the White House—with a narrow majority in the House and a 50-50 split in the Senate.
A CBS News poll released on Sunday showed Mr. Biden’s public approval rating is at 44%, his lowest since taking office. Only 30% of Americans said the economy is good, the poll showed, down from 37% in October and 45% in July. While 53% of Americans approve of Mr. Biden’s handling of Covid-19 vaccine distribution, only 39% approve of his handling of the economy and 33% of inflation, the poll showed.
Administration officials didn’t specify when they expect consumers to see lower prices at the pump, though they noted there is usually a lag between increased oil supplies and when retail prices fall. “We expect the industry to be passing through these savings to consumers as quickly as possible,” one official said.
On Tuesday U.S. crude futures climbed 2.3% to settle at $78.50 a barrel. That price is up 75% from a year ago.
South Korea hasn’t made an announcement confirming its participation, and its officials in Washington didn’t respond to requests for comment.
A spokesman for the Japanese government in Washington said Japan would have an official announcement coming Wednesday. The country is expected to announce a first-ever drawdown from its strategic reserves, roughly 4.2 million barrels, or the equivalent of one to two days of the country’s consumption, according to the Nikkei, a leading national daily.
India said it would release five million barrels of crude—a little more than one day’s consumption—from its strategic petroleum reserve of around 38 million barrels. A U.K. spokesperson said the country would release the equivalent of 1.5 million barrels of oil.