With gas prices hovering near record levels, President Joe Biden plans to pump 180 million barrels of oil from the US strategic oil reserve over the next six months.
The release – about 5% of half a year’s US demand – is by far the largest since emergency stocks were created in the 1970s.
But as big as this infusion is, don’t expect a lot of relief at the pump.
Biden, like any other president, doesn’t have much of an impact on the price of gas. He’ll take a few nuggets for high prices anyway. But that’s part of the job.
Tapping into the Strategic Petroleum Reserve still makes sense now. Saving even pennies on gas costs will put dollars in the pockets of people trying to cope with rising prices for groceries and other necessities. And if increased supplies push down global oil prices, it means Vladimir Putin will have to pay fewer petrodollars for his war in Ukraine.
The impact of Biden’s decision will be amplified if some of the 30 other member countries of the International Energy Agency catch up with the US, as they did last month when the President ordered the release of 30 million barrels of oil.
Biden’s decision offers a lesson in global oil economics — and an opportunity to debunk a myth about US energy independence.
First the economy. As the US pumps out oil from the reserve — some 568 million barrels in total and stored in underground salt caverns along the Gulf Coast — it is sold on the world market. Futures markets are complex and there is no guarantee that additional supply will continue to push prices lower.
There is also no guarantee that lower oil prices will result in lower prices at the pump.
On Friday, the average price of crude oil was $99 a barrel, down $20 from a March 8 peak. Still, the average US price of a gallon of unleaded gasoline rose 60 cents in March, according to the AAA. This discrepancy could reflect supply chain disruptions or expectations that the drop in crude oil prices will be temporary, especially if more European countries cut imports of Russian gas and oil.
Despite rising prices, US production hasn’t increased much, and oil companies surveyed by the Dallas Federal Reserve Bank said they were struggling to secure funding. At some point the US will have to replenish the strategic reserve; Perhaps that will give investors the confidence to turn the tap on oil drillers.
As for the myth, a growing chorus of voices is claiming that the United States gained energy independence under Donald Trump and lost it after Biden became president. No, not if energy independence is defined as meeting all of our household needs.
The US imports and exports petroleum – crude oil and refined products such as gasoline – due in part to transportation costs, refining technology, and the need for different grades of oil for different purposes. As recently as 2006, the US imported 60% of its crude oil, but the gap narrowed with the fracking boom.
In 2020, the last year of Trump’s presidency, the US exported about 635,000 barrels more of oil per day than it imported, according to the US Energy Information Administration, “making the United States an annual net oil exporter for at least the first time since 1949.”
A year later, after Biden took office, oil exports again exceeded imports. The margin was smaller — 164,000 barrels per day — but if the US was energy independent under Trump, it still is under Biden.
In fact, the US is part of a global energy market that can do more than any president to influence prices.
You can send letters to the editor to [email protected]
Comments are closed.