Biden authorized the release of 50 million barrels of crude oil from the reserve on Tuesday in a coordinated effort with other nations, including India, China and Japan, with India alone releasing 5 million barrels from its stockpile.
However, experts who spoke to Newsweek suggested that the effect of tapping the SPR could be limited and pointed to volatility in energy prices as well as the relatively modest amount of crude oil in question.
The president’s action may have a minimal effect on the price of a barrel of oil given the planned incremental release from the SPR.
Philip Walsh, professor of entrepreneurship and strategy at Ryerson University in Toronto and principal investigator at the university’s Center for Urban Energy, told Newsweek that much will depend on how quickly the oil gets into the energy system.
“One needs to be careful to directly equate a relatively minimal release of oil reserves to lower gasoline prices,” Walsh said.
“First of all, 50 million barrels of oil is less than three days of consumption in the United States and the market for oil is not limited to producing just gasoline. Heating oil and oil-fired power generation will also compete for that surplus supply,” he said.
Walsh explained that gasoline prices are “influenced by oil prices which are driven by the demand-supply balance.”
Short-Term Impact
“So any short term impact on gasoline prices from the release of oil from the U.S. Strategic Reserve will be dependent on how quickly that oil gets into the U.S. energy system and at what daily amount,” Walsh said.
The Department of Energy (DOE) announced in a statement on Tuesday that companies will be able to submit bids for the oil up to December 6, with contracts awarded no later December 14.
The oil will be delivered from January through April 2022, “with early deliveries accepted in late December.”
Walsh noted on Wednesday that “the overnight trading response to this announcement and similar announcements from other countries around the world has resulted in higher trading prices for oil contracts.”
Prices at the Pump
Professor Dirk Buschle is Iberdrola Manuel Marin chair for European Energy and Climate Policy at the College of Europe in Belgium. He told Newsweek that Biden’s decision was “an intervention in the market with an instrument designed for reduced or interrupted energy supplies.”
“As energy prices may remain volatile for some time, governments should be careful in not making this kind of intervention a rule rather than an exception,” Buschle cautioned.
The relatively small amount of oil released coupled with continuing issues in the energy market mean Biden’s move could have a limited impact and it certainly appears there will be little effect on gas prices ahead of Thanksgiving.
Devin Gladden, a spokesperson for the American Automobile Association (AAA), told Newsweek on Tuesday that the oil release is “unlikely to have an immediate impact by Thanksgiving.”
“Although we will see some incremental decreases, we’re not expecting this to have a long-term impact. But it certainly will have an impact,” Gladden said.
GasBuddy, a company that compiles real-time gas prices across the nation, showed the average price of gasoline was around $3.40 a gallon on November 24.
Oil Supply
Biden appeared to acknowledge the difficulty of lowering gas prices in remarks on Tuesday, taking aim at gas supply companies.
“The price of gasoline in the wholesale market has fallen by about 10 percent over the last few weeks, but the price of the pump hasn’t budged a penny,” the president said.
“In other words, gas supply companies are paying less and making a lot more. They do not seem to be passing that on to the consumers at the pump,” Biden said.
The president also reiterated that he has asked the Federal Trade Commission (FTC) to examine oil and gas markets and determine “whether potentially illegal and anti-competitive behavior” was contributing to high prices.
Biden’s decision comes after he failed to convince the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known together as OPEC+, to increase oil production. The group was reportedly considering lowering production ahead of the coordinated releases, which could further impact supply and prices.
Meanwhile, Europe is still experiencing an energy crisis and, as the winter approaches, the situation on the continent could worsen. European countries are already resorting to coal—the most polluting fossil fuel—while the situation has further exposed their dependence on natural gas from Russia.
However, natural gas prices have fallen in recent days due to concerns that European countries could re-enter COVID-19 lockdowns.
A variety of global factors beyond Biden’s control will likely mean the gas price issue will persist for some time.
