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 spiking energy prices – but one that industry insiders say won’t work.
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.”
Odessa oilman Kirk Edwards said via email that he immediately posted that the move will make “zero difference ahead in American gas prices.”
He argued, “OK, Biden Administration it’s now time for your SPR 101 class on why dumping 1 million barrels of oil a day from our “Strategic Petroleum Reserve” (please note it’s not named the Sacrificial Presidential Resource) will make zero difference ahead in American gasoline prices.”
He said in January 2022 the US produced about 11.35 million barrels of oil per day (MMBOPD). “We imported 6.35 MMBOPD made up of mostly sour/heavier crude from Canada and, yes, Russia, For a total of 17.7 MMBOPD coming into our US refineries. We also exported out some 3.3 MMBOPD of light sweet crude to other countries because the US refineries have to have an exact blend of 65% sweet and 35% sour oil to make the proper amount of gasoline, diesel and jet fuel.”
He said it gets complicated from there. “The fact is our US refiners buy exactly the 65/35 blend they need. Every day. And that amounts to about 17.7 MMBOPD. Every day. The administration dumping 1 MMBOPD into the market means that a few lucky refiners will “not” have to buy that amount of imported oil for the next 6 months. It will simply go somewhere else. No refiner wants to store oil at $105 per barrel. Makes no sense. So again, the refiners won’t be buying any additional sour oil for a few months. No big deal.”
Edwards said only a few Texas and Louisiana refiners will get this windfall. “No East or West Coast refiners. You guys get to keep your $7 gasoline for a bit longer. Sorry! We in Texas thank you as always!”
Edwards said the SPR, in the meantime, gets used for political purposes – not for the reason it was built, which was “to have a strategic reserve should, substantially, all of our oil imports get cut off. I don’t know who is advising you Mr. President, but sir this makes absolutely no sense to do today. We may actually need that oil in the future. I pray we won’t.”
Meanwhile 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.”
Sen. Steve Daines, R-Mt., blasted Biden’s action to tap the reserve without first taking steps to increase American energy production, calling it “a Band-Aid on a bullet wound.″
Daines called Biden’s actions “desperate moves″ that avoid what he called the real solution: ”investing in American energy production,″ and getting “oil and gas leases going again.”
The administration says increasing oil output is a gradual process and the release would provide time to ramp up production. It also wants to incentivize greater production by putting fees on unused leases on government lands, something that would require congressional approval.
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 4% in Thursday trading to under $104 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.
Republican lawmakers have said the problem results from the administration being hostile to oil permits and the construction of new pipelines such as the Keystone XL. Democrats say the country needs to move to renewable energy such as wind and solar that could reduce the dependence on fossil fuels and Putin’s leverage.
In his remarks Thursday, Biden tried to shame oil companies that he said are focused on profits instead of putting out more barrels, saying that adding to the oil supply was a patriotic obligation.
“This is not the time to sit on record profits: It’s time to step up for the good of your country,” the president said.
Edwards blasted that attitude.
“The administration ought to be apologizing to the US independent producers for vilifying them since day one of taking office and doing everything they can to hurt the drilling process on federal lands and in the Gulf of Mexico.”
He said the administration needs to realize that American oil producers are part of the answer to the problems. “We are the solution…especially with all going on in Europe today. Until the administration realizes that these oil companies are going to be very wary of coming up with hundreds of millions of dollars not knowing what lies ahead of them punitively from this administration.”
Still, the politics of oil are complicated with industry advocates and environmentalists both criticizing the planned release. Groups such as the American Petroleum Institute want to make drilling easier, while environmental organizations say energy companies should be forced to pay a special tax on windfall profits instead.
The administration in November announced the release of 50 million barrels from the strategic reserve in coordination with other countries. And after the Russia-Ukraine war began, the U.S. and 30 other countries agreed to an additional release of 60 million barrels from reserves, with half of the total coming from the U.S.
According to the Department of Energy, which manages it, more than 568 million barrels of oil were held in the reserve as of March 25. After the release, the government would begin to replenish the reserve once prices have sufficiently fallen.
