Small gas-price impact seen from petroleum reserve sale
As the U.S. braces for a busy holiday travel period, the Biden administration’s decision Tuesday to sell 50 million barrels from the Strategic Petroleum Reserve should lower gasoline prices in the short term, analysts said.
In an effort coordinated with other nations, the U.S. will make up to 32 million barrels of crude oil available and will sell an additional 18 million barrels of oil, as Congress mandated in budget legislation in 2018, the Energy Department said.
Energy Secretary Jennifer M. Granholm said the administration is trying to lower costs for the public and boost the nation’s economic recovery due to the COVID-19 pandemic. “As we come out of an unprecedented global economic shutdown, oil supply has not kept up with demand, forcing working families and businesses to pay the price,” Granholm said.
The announcement comes after congressional Democrats urged Biden to direct a sale from the national crude oil stockpile to ease driving and heating costs during the holiday period, although market experts said the effect would be minimal.
DOE said it is coordinating its sale with “other major energy-consuming nations including China, India, Japan, South Korea and the United Kingdom,” in an effort to increase global supply.
Stephen Nalley, the acting administrator of the U.S. Energy Information Administration, told senators at a hearing last week the agency expects heating bills in the U.S. to increase between 6 and 46 percent this winter from last winter, though that range depends on the fuel used for heating.
Craig Erlam, senior market analyst at foreign exchange broker Oanda, said the fact that the release is being done in conjunction with other countries gives it more impact, at least in the message it sends, and the move could take some of the heat out of the market.
That could help avoid oil prices rising significantly in the near future.
“But based on how the market’s reacted, it doesn’t seem like people are buying too much into it,” Erlam said. “We’re still talking relatively low numbers over a long period of time.”
He noted the politics at play, with the Biden administration not wanting to be seen as sitting on its hands while prices go up ahead of next year’s midterm elections.
But the practical effect is likely to be limited.
“I don’t think we’re necessarily going to be talking a big, a massive, change at the pump,” Erlam said.
Nalley said that the rise in gas prices — the national average Tuesday for a regular gallon of gas stood at $3.40 versus $2.11 a year ago, according to the automotive club AAA — was due to higher demand from the global economic recovery as the pandemic abates and limited supply.
Nalley said tapping into the Strategic Petroleum Reserve — a network of caverns and salt caves in Texas and Louisiana that current holds 604.5 million barrels, according to DOE — would lead to some financial relief.
“It would provide temporary relief,” Nalley said. “We did some recent analysis where it looked like somewhere between 15 million barrels to 48 million barrels for a short period of time would bring down the price of crude oil, about $2 per barrel, about five to 10 cents at the pump.”
The administration said the sale of 32 million barrels would take place in December and the sale of the 18 million barrels would occur “no sooner” than Dec. 17.
Republicans and conservative business-aligned groups, such as the U.S. Chamber of Commerce, criticized the sale announcements, saying the reserve should be reserved for emergencies. Democrats cheered the move as a short-term salve but said high fossil energy costs underscore the benefits of less volatile renewable energy sources.
“President Biden’s announcement is good news for American families and will strengthen our economy,” Senate Majority Leader Charles E. Schumer said in a statement. “Of course, 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.”
Rep. Cindy Axne, D-Iowa, who wrote a letter with eight other House Democrats on Monday pressing Biden to sell oil from the reserve, said she appreciated “President Biden for heeding my concerns and the concerns of those around the country who are feeling the burden of higher gas prices every time they fill up their tank.”
That letter followed another, sent Nov. 8 by 11 Democratic senators, largely from states in the mid-Atlantic and New England, calling for Biden to direct a sale from the reserve.
Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at the American Petroleum Institute, a trade group for oil and gas companies, said Tuesday his industry supports increasing domestic oil production.
“We believe that any impact resulting from an SPR release is likely to be short-lived unless it is paired with policy measures that encourage the production of American energy resources,” Macchiarola said in a statement.
Republican officials criticized the decision to sell crude oil as a short-term measure that should be reserved for national emergencies.
“It’s clear to me the Biden administration doesn’t know they need to provide regulatory certainty and embrace domestic energy production if we want to see lower prices at the gas pump and then everything else in the value chain,” Sen. Kevin Cramer, R-N.D., said Tuesday.
GOP members have upbraided the Biden administration for issuing a moratorium on new oil and gas leases on federal land and in federal waters, although experts say the Biden administration has issued oil and gas leases at a rate similar to previous administrations.
Since it was founded in 1974, the International Energy Agency, of which the U.S and other oil-producing countries are members, has periodically directed the release of oil onto the global market from its member nations.
IEA countries are obligated to hold 90 days’ worth of their net imports in reserve, and since the group’s creation, there have been three “coordinated” releases of oil onto the worldwide market.
They happened before the Gulf War of 1991, after Hurricanes Katrina and Rita ripped through the Gulf of Mexico in 2005 and in response to the disruption of oil supply the Libyan Civil War of 2011 caused, according to the IEA.
Some Democrats have floated the idea of temporarily reinstating a ban on crude oil exports from the United States. Speaking on Fox News on Monday, Rep. Ro Khanna, D-Calif., called for such a move, which would require an act of Congress.
“We need to have a temporary ban on the export of oil so we can bring gas prices down,” Khanna said in part.
Congress lifted the ban, which had been in place since the 1970s, in 2015.
At an October conference organized by the Financial Times publication, Granholm did not rule out lifting the ban. “That’s a tool that we have not used, but it is a tool as well,” she said.
Joseph Morton contributed to this report.
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