Will gas prices ease with Biden's release from strategic reserve? Experts say it's not enough
One million barrels of oil will be released per day over the next six months in an effort to help lower gas prices that have soared since Russia's invasion of Ukraine.
- Biden tries to blunt record gas prices with release of oil reserves.
- One expert said White House should have released more reserves into the U.S. economy.
- A major petroleum trade group said the move is "short term" fix.
President Joe Biden’s move to release up to 180 million barrels of oil from the nation's emergency reserve is a step in the right direction to help lower record-high gas prices, petroleum experts said Thursday, but it’s likely not enough for consumers to see relief at the pump.
“I don’t want to say it’s insignificant, but it’s not the amount we need,” said Tom Seng, an assistant professor of energy business at the University of Tulsa Collins College of Business.
While it may sound like the U.S. is releasing a lot of oil into the market, Seng said, theU.S. currently is importing about 6 million barrels of oil a day, and U.S. demand has not significantly declined in the past month despite skyrocketing gas prices since Russia's invasion of Ukraine on Feb. 24.
Seng, who directs Tulsa's School of Energy Economics, Policy and Commerce, said the White House should have released 6 million barrels of oil a day for 30 days or 3 million across two months to have a significant, short-term impact for consumers.
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However, others who monitor the global petroleum industry said it's unlikely America's supply chain could handle that much of an increase and Biden's move was a "short-term fix" to what could be a lengthy problem for consumers.
Biden announced plans to release 1 million barrels of oil per day from the Strategic Petroleum Reserve over the next six months to help lower gas prices that he said have soared as a result of Russia's invasion of Ukraine and the U.S.'s recovery from the coronavirus pandemic. The order will be the largest release from the reserve in its nearly 50-year history.
Americans on average are paying $4.22 a gallon for regular unleaded gas, according to AAA, which tracks prices across the country. That's up from $3.61 a gallon a month ago and $2.87 a year ago. In California, a state with the highest gas taxes in the country, prices at the pump are well above $6 a gallon at stations in Los Angeles and San Diego.
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The supply of Russian oil in the market has tanked in the month since the war began, which Biden said has caused gas prices to skyrocket. The president argued that releasing oil from the emergency stockpile would cause gas prices to drop. How much they will fall is hard to say, the president said, but he predicted it could be anywhere from 10 to 35 cents per gallon.
John L. Graves, an energy transaction specialist in Houston, said the release from the strategic reserves "does nothing to address long-term concerns about domestic fuel prices, our energy security or our ability to provide natural gas and crude oil to our allies who desperately need it."
U.S. ban on Russian energy
In early March, Biden banned the U.S. import of all Russian energy products to punish the Kremlin for its invasion of Ukraine. The ban applied to purchases of Russian crude oil, certain petroleum products, liquefied natural gas and coal.
"It was the right thing to do," Biden said Thursday. "But I said at the time, it's going to come with a cost. As Russian oil comes off the global market, supply of oil drops, and prices are rising. Now Putin's price hike is hitting Americans at the pump."
Seng said the president may have other options to lower fuel prices if the Organization of Petroleum Exporting Countries (OPEC) keeps its promise to increase production of oil in April. Or, he said, the White House could lift sanctions against oil-rich Venezuela to put more oil in the global market.
However, Rob Thummel, a St. Louis-based energy expert for TortoiseEcofin, an ecology, finance and investment firm, said it's questionable as to whether the United States has the infrastructure in place to release 1 million more barrels of oil a day. And he said it's extremely unlikely the country's supply chain could handle a larger output as suggested by Seng.
Thummel said by releasing 1 million additional barrels a day for 6 months the Biden administration is giving producers more time to do additional oil extraction that can replenish the reserves this fall.
"Producing oil is not like turning on a water faucet. It takes months to get production back up. If U.S. producers want to produce more oil, it takes six to nine months to ramp up," he said. "You can take it out of the strategic reserves now and fill it from increased production in the future.
Thummel added that removing 180 million barrels of oil will reduce the roughly 563 million strategic reserve to the same level as 1983, when the U.S. economy had rebounded from a major gas crisis and the U.S. had entered into one of the longest periods of sustained economic growth since World War II. He added it's essential to replace the reserves at a later date, and he said low diesel inventory and high natural gas prices are contributing to rising gas prices.
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The American Fuel & Petrochemical Manufacturers said the release from strategic reserves is a short-term fix and not a long-term solution.
"Stability and certainty is what global crude oil markets crave. The surest way to improve stability is by increasing oil production from stable countries, including our own," the trade group said.
Chamber: Biden mischaracterizing problem
The U.S. Chamber of Commerce said it agrees that U.S. oil and gas production is essential to relieving high fuel prices but accused Biden of mischaracterizing the obstacles to ramping up production.
Biden has criticized some oil and gas companies of sitting on unused wells and said they would rather rack up record profits than spend money to increase production.
To spur domestic production, Biden called for Congress to force companies to pay fees on wells from leases that they haven't used in years. Companies that are producing from leased acres and existing wells won't be subject to the fees.
Marty Durbin, president of the chamber's Global Energy Institute, said one of the problems to increasing production is that the U.S. government has been reluctant to process permits for energy exploration.
"American energy companies have paid significant funds for leases and have every incentive to produce energy where they can," Durbin said. "However, it takes years and many permits to explore for energy and even then, not every well drilled on a federal lease is ultimately suitable for energy production, which the administration continues to ignore."
Punitive policies and rhetoric "send exactly the wrong message to industry and its investors at a time when the Administration should be seeking to collaborate, not punish," he said.
The Independent Petroleum Association of America, which represents oil and gas producers, also took issue with Biden’s characterization of oil and gas companies sitting on unused leases.
"Independent oil and natural gas producers do not sit on leases they acquire on onshore and offshore federal lands,” said Dan Naatz, the group’s executive president, who stressed that it’s in a company’s best interest to develop the leases it acquires.
Companies pay rent on federal leases until they are in production, with rental rates that escalate over time, Naatz said.
Although the Biden administration wants to make the public believe exploring for oil and natural gas on federal lands is a simple process, “nothing could be further from the truth,” Naatz said.
“Our industry is heavily regulated, and there are various factors that cause companies to wait to explore and drill wells,” he said. “Because of the uncertainty of operating on federal lands, companies must build sufficient inventory of permits before rigs can be contracted. They must acquire the proper rights of way and ensure they have the proper pipeline infrastructure to ensure the oil and natural gas can be delivered to markets safely and efficiently."
Wyoming Sen. John Barrasso, the top Republican on the Senate Energy and Natural Resources Committee, said Biden's order won't help lower prices at the pump.
“Releasing more oil from the Strategic Petroleum Reserve doesn’t produce one more barrel of American oil,” Barrasso said. “President Biden simply refuses to do the one thing that will actually make a difference for American families and our allies: produce more domestic energy. His administration has spent the last 14 months making it more difficult to produce and move American oil and natural gas. He needs to reverse course.”
Have a tip on business or investigative stories? Reach the reporter at firstname.lastname@example.org or 602-509-3613 or on Twitter @CraigHarrisUSAT or linkedin.com/in/craig-harris-70024030/. White House correspondent Michael Collins can be reached at 703-854-8927 or on Twitter @mcollinsNEWS.