Biden announces massive strategic oil reserve release to curb gas prices

Source: By Steven Mufson and Cleve R. Wootson Jr., Washington Post • Posted: Thursday, March 31, 2022

The unprecedented release of 1 million barrels a day over the next six months from the Strategic Petroleum Reserve aims to make up for the loss of Russian oil from global markets amid the Ukraine conflict

President Biden delivers remarks at the White House on March 30, 2022. (Demetrius Freeman/The Washington Post)

President Biden on Thursday announced that he will release 1 million barrels a day from the nation’s Strategic Petroleum Reserve to try to offset the loss of Russian crude oil from world markets, starve Russia of revenue and cut the cost American consumers are paying at the pump.

The release — the biggest withdrawal in the reserve’s more than 46-year history — would continue for the next six months, administration officials said, an indication that the Biden administration anticipates a prolonged conflict in Ukraine.

This is a wartime bridge to increase oil supply into production,” Biden said in remarks at the White House. “… It is by far the largest release of our national reserve in our history to provide a historic amount of supply for a historic amount of time, a six month bridge to the fall.”

Biden also decried U.S. oil companies putting profits over production and called on Congress to impose fees.

“It’s not the time to sit on record profits. It’s time to step up for the good of your country,” Biden said.

A senior administration official said that the first barrels would hit the market in May and that the drawdown of U.S. strategic reserves would serve as “a bridge” to greater supplies. He said the administration is “committed to restocking the reserve once we’re through this emergency.”

The price of crude oil on U.S. and international markets fell about 4 percent by the early afternoon.

Administration officials have been scrambling to devise a way to lower gasoline prices, which have rise as the United States and other nations have cut back imports of Russian oil and natural gas in the wake of its invasion of Ukraine. As of Wednesday, the average price of a gallon of gasoline in the United States was $4.24, according to AAA, up from $3.60 per gallon last month and $2.90 per gallon last year.

Biden has long tried to brace Americans for the economic reverberations of Russia’s invasion of Ukraine while also seeking to make it clear that the Russian president is the cause of the pain at the pump and rising prices elsewhere. His administration has used phrases like “Putin’s pump hike” in public messaging to underscore the point, including on Thursday. Republicans, meanwhile, have stressed that rising prices and inflation began before Russia’s aggression toward its neighbor, and accused the administration of using the conflict in Europe as a cover for policies that have hurt American consumers.

Concerned about the effect of higher gas prices on both the economy and Democrats’ prospects for the midterm elections, the administration has explored several options, including a gas tax and, a “windfall profits” tax on energy companies, accusing them of price gouging.

“I think it’s overdue,” said Jay Hakes, who led the Energy Information Administration during the Clinton administration and was director of the Jimmy Carter Presidential Library. He said that “if it is paired with some effort at conservation, if you ask people to obey the speed limit, then the reserve [withdrawal] should be enough.”

Hakes said that “these aren’t humongous amounts.” But he noted that commodity markets have their own psychology and that fairly small amounts can have an impact.

The administration also announced that it would invoke the Defense Production Act to encourage the domestic development of critical minerals needed for producing clean energy technologies such as batteries used for storing renewable energy and in electric vehicles.

Drawdowns from the Strategic Petroleum Reserve are rare, but Biden has turned to the Strategic Petroleum Reserve before. On Nov. 23, Biden announced he would withdraw 50 million barrels to lower gasoline prices in coordination with U.S. allies to “address the mismatch” between supply and demand during the pandemic. And earlier this month, the Energy Department announced plans to release 30 million barrels of oil from the reserve given the effect of Russia’s Ukraine invasion.

This most recent move, like the one earlier this month, targets the approximately 2 million barrels a day of Russian oil that the administration says are off the market because of a “buyer’s strike.”

“With the previous SPR releases, the Biden administration has been targeting price, which marked a break from prior policy of using stockpile releases to backfill a major supply disruption or refinery outages,” Helima Croft, head of global commodity strategy at RBC Capital Markets, said in a note to investors, adding that with the Biden administration “promising further sanctions if Russia continues to wage war in Ukraine, we believe that the SPR release is being used as a tool to blunt the impact of these foreign policy decisions for U.S. consumers.”

Republicans, meanwhile, are pressing Biden to expand oil drilling here at home. Sen. Bill Cassidy (R-La.), a member of the Senate Energy and Natural Resources Committee, released a statement saying that “releasing additional oil from the Strategic Petroleum Reserve must be accompanied by a plan to increase production and backfill the supply.” Cassidy said that “the Biden administration must not put our future energy security at risk for a short-term attempt to salvage the president’s plummeting poll numbers.”

The Strategic Petroleum Reserve has been a largely bipartisan project. It was established after the Arab members of the Organization of the Petroleum Exporting Countries embargoed the United States because of its assistance to Israel during the Yom Kippur War in 1973. President Gerald Ford signed the Energy Policy and Conservation Act on Dec. 22, 1975, establishing the reserve. President Jimmy Carter constructed facilities at salt domes used for storage along the Gulf of Mexico coast. President Ronald Reagan continued to purchase oil for the stockpile.

At its peak, the reserve stored 726.6 million barrels, but Congress and the Trump administration sold off portions of it for budgetary reasons. The reserve’s inventory stood at 568.3 million barrels on March 25.

Like many previous drawdowns, the Biden administration plans on giving crude oil from the reserve to private oil companies as part of a swap. The companies pledge to return the oil at a later date when the crisis is over.

The administration’s decision came as members of OPEC+ — a combination of OPEC and non-OPEC oil exporters such as Russia — are planning to consult this week on production plans. The United States has asked Saudi Arabia and the United Arab Emirates to increase production by about 2 million barrels a day, but relations with the Saudi kingdom have been frayed. The Saudis, whose oil installations have been attacked by Iranian-backed Houthi forces in Yemen, wants U.S. security guarantees. The kingdom also, as a matter of policy, prefers to keep a cushion of about 2 million barrels a day for even greater supply disruptions.

The International Energy Agency is set to meet this week to weigh whether it will coordinate with the United States as it did in November.