With high gas prices, calls increase to tap the strategic oil reserve

Like gasoline prices and inflationary pressures have increased In recent weeks, there have been growing calls in Congress for the Biden...


Like gasoline prices and inflationary pressures have increased In recent weeks, there have been growing calls in Congress for the Biden administration to tap into the country’s strategic oil reserve.

Senate Majority Leader Chuck Schumer added his voice over the weekend. “We need immediate help at the gas pump, and the place to look is the strategic oil reserve,” Schumer, a Democrat from New York, said at a press conference.

Energy Secretary Jennifer M. Granholm said such a release is a step the administration is considering to calm energy markets, as well as urging Saudi Arabia and other foreign producers to increase oil production.

People who support such a publication said that a sale of the reserve with oil prices above $ 80 a barrel would not only increase supplies and lower prices at the pump, but would also generate billions of dollars in revenue for the federal government.

Storage of approximately 620 million barrels of various grades of crude oil in underground caverns in four sites in Texas and Louisiana, the strategic oil reserve holds the largest emergency reserve in the world. It is able to meet the country’s consumption needs for about a month in the unlikely event that all imports and domestic production are interrupted.

Established after the 1973-74 oil embargo by Arab members of the Organization of the Petroleum Exporting Countries, it has only been used in a few emergency situations, including the build-up of the Persian Gulf War in 1991 and the aftermath of Hurricane Katrina in 2005, when much of the oil infrastructure in the Gulf of Mexico was damaged. More frequently, it was used to trade or lend oil to refineries when ship channels were blocked by barge accidents or storms.

With the global economy and shipping lanes warped by the pandemic, the United States faces inflationary pressures unprecedented in decades. And now that the United States is a major producer of oil, it no longer needs to keep the reserve as full as it was when the country was much more dependent on foreign oil.

“High gasoline prices have placed an undue burden on families and small businesses trying to make ends meet,” said a letter sent by 11 Democratic senators to President Biden last week, “and has proven particularly distressing as our voters continue to recover from the economic fallout from the Covid-19 pandemic.”

A publication would recalibrate the supply-demand equation, alleviating the tightening of the oil market. Even a temporary reduction in domestic prices for oil, gasoline and diesel would ease inflationary pressures on food and other goods being trucked across the country.

Oil prices having more than doubled since Economic collapse which accompanied the hardest months of the pandemic, the average price of a gallon of regular gasoline in the United States rose to $ 3.42 on Monday from $ 2.13 a year ago, according to AAA.

Global supplies are limited because OPEC members have limited production to support prices. U.S. producers have also been cautious, in part because investors demand that they focus on reducing debt and increasing dividends rather than increasing production just to oversupply the market and reduce again. the costs.

Outings should be reserved for real emergencies. The reserve was established and designed to cope with emergency disruptions due to wars and storms, not the periodic increase in prices at the pump. When supplies are tight, prices naturally rise and companies generally respond by producing more to solve the price problem at least eventually.

Most experts believe that an exit would bring prices down modestly, at least for a short time.

The amount depends on the amount released and whether such action is coordinated with allies who might also release reserves, such as Japan and Germany. A release of, say, 30 million barrels would only have a temporary impact since oil prices are set globally and global consumption averages around 100 million barrels per day.

“A release of the SPR volumes, which are primarily held in crude oil and not in petroleum products like gasoline, would provide a respite from gasoline prices, but the impact would likely be slight and short-lived,” he said. said Louise Dickson, senior oil markets analyst. at Rystad Energy, a consulting firm.

Oil prices have fallen in recent days, perhaps in part because the threat of drawing on the strategic reserve is taken seriously by oil traders. The average price of a gallon of regular gasoline has fallen by a cent over the past week.

“The market is focused again on the United States and how the Biden administration will act now that political pressure is mounting,” Ms. Dickson said.

But it is not the only reason. The recent strengthening of the dollar has lowered the price of oil because it takes less dollars to buy a barrel of oil. US shale oil producers have beefed up their platforms in service, which should bring more supplies to the market in the coming months. In addition, a new wave of coronavirus has hit parts of Europe, threatening to slow the continent’s economic recovery.

Maybe in some places. Most homes use electricity or natural gas for heat. But around five million homes still use fuel oil, mainly in the Northeast. A release of the strategic reserve could help modestly, but any impact would have to wait until the end of winter for the oil to be processed by refiners and shipped.

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Newsrust - US Top News: With high gas prices, calls increase to tap the strategic oil reserve
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