Tuesday, March 26

Will tapping the Strategic Petroleum Reserve lead to lower gas prices?


In a move to lower gas prices, which continue to hover near the record high, President Joe Biden announced plans Thursday to release roughly 1 million barrels of oil a day from the Strategic Petroleum Reserve for about six months. The release would be the largest in the reserve’s nearly 50-year history. But it’s difficult to predict how effective it will be in relieving the pain at the pump.

Here’s what you need to know:

What is the Strategic Petroleum Reserve?

The reserve is the country’s emergency supply of oil. It’s housed underground in dozens of caverns among four salt domes along the coasts of Texas and Louisiana. The reserve can hold more than 700 million barrels to be used “to counter a disruption in commercial oil supplies which could threaten the US economy,” according to the Energy Department. The oil can be sold to other countries and used to pump more supply into the market.

Why was it created?

The reserve was created by President Gerald Ford in 1975 in the aftermath of the Arab oil embargo, which damaged the US economy. After the embargo was imposed in October 1973, the price of a barrel of oil quadrupled, gas prices spiked, and the US faced its first fuel shortage since World War II.

How quickly can oil from the reserve enter the market?

Up to 4.4 million barrels of oil can be extracted from the reserve a day for a maximum of 90 days. Once the president calls for a release, it can take at least 13 days for the oil to go out for delivery, according to the Energy Department. The first barrels in the upcoming release are set to hit the market in May.

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Oil pipelines at the Bryan Mound Strategic Petroleum Reserve in Freeport, Texas, in 2016. Luke Sharrett/Bloomberg via Getty Images

Will releasing more oil onto the market bring down gas prices?

“There’s no firm answer,” Biden said Thursday. “It could come down to the best part of, you know, anything from 10 cents to 35 cents a gallon. It’s unknown at this point.” Biden said he’s waiting to see whether US allies contribute to the release. “My guess is it could be as high — somewhere between 30 million to 50 million barrels. And the higher the number, the more likely the prices to come down.”

Stewart Glickman, an energy analyst at CFRA Research, said tapping the reserve could produce a “small reduction in oil prices because of an increase in supply.” But he said he doesn’t expect it will be “that effective in pushing prices down.”

“It might give you a little bit of short-term relief in the same way that taking some Advil will give you temporary relief from a headache,” he said. “But the root cause of the headache is probably still going to be there, and that’s going to be sticking around long after the medicine’s worn off.”

Glickman pointed out that 1 million barrels accounts for just 5 percent of the daily oil consumption in the US Last year, the US consumed 19.78 million barrels of oil a day, according to the US Energy Information Administration.

So why not take out more? Glickman said that the reserve is intended to be a “buffer” and that reducing it too much could “limit our flexibility the next time we have some kind of unanticipated shock, like a hurricane.”

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Has it been done before?

The US has tapped into the reserve numerous times, including in the aftermath of six hurricanes since 2002, among them Harvey and Katrina. Biden has called for multiple releases since he took office, including one in November, when 50 million barrels were sold to stabilize the market. The last time reserve oil was used amid geopolitical tensions was in 1991 during the Gulf War.

Some critics argue that Biden is misusing the reserve to gain political points, rather than respond to an emergency. Although Severin Borenstein, the faculty director of the Energy Institute at the Haas School of Business at the University of California, Berkeley, said “politically it’s probably happening because gas prices are high,” he said he believes “it is the right use of the reserve.” “The reserve was set up in the 1970s after the Arab oil embargo to defend against geopolitical disruptions in the oil market, which is exactly what’s going on right now with Russia’s invasion of Ukraine,” he said.


www.nbcnews.com

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