EXPLAINER: What is the Strategic Petroleum Reserve? - Albuquerque Journal

EXPLAINER: What is the Strategic Petroleum Reserve?

NEW YORK — When President Joe Biden ordered the release of 50 million barrels of oil from America’s strategic reserve to help reduce energy costs, he was taking aim at a growing burden for millions of Americans embarking on Thanksgiving travel.

The step announced Tuesday, done in a rare coordination with several other nations, is among the few things a presidential administration can do to try to lessen the squeeze — and the political threat — of rising inflation. The likelihood of providing meaningful relief in the near future, however, is probably low. Still, any help in easing fuel prices, even modestly, would be welcomed by many Americans.

Here is a look at what’s involved:

___

JUST WHAT IS THE PETROLEUM RESERVE?

America’s Strategic Petroleum Reserve holds about 605 million barrels of oil in underground salt caverns in Texas and Louisiana. It was created following the 1970s Arab oil embargo to store oil that could be tapped in an emergency. But the dynamics of the global oil industry changed dramatically in recent years: Now the U.S exports more oil than it imports.

There’s a limit to how much can be released at once. In the past the government has released about 1 million barrels per day. At that rate, the promised influx of 50 million barrels of crude could last about two months.

___

WHY DID BIDEN TAP THE RESERVE?

The idea is that by putting more oil on the market, prices will fall. That hasn’t happened yet. But depending on what happens in the rest of the world, there’s still a chance it could work.

Oil prices rose slightly after the announcement. Traders were anticipating the news, and may have been underwhelmed by the details, said Claudio Galimberti, senior vice president for oil markets at Rystad Energy.

“The immediate price reaction is not the final judgment on the effectiveness of this effort,” said Jim Burkhard, vice president at IHS Markit. “It will really be in the months ahead.”

Whether the move is effective depends on several factors.

___

WHAT ABOUT OPEC?

The OPEC oil cartel and its allies will be meeting in about a week to decide whether to increase production or to hold back, a strategy the group often employs to boost prices. Earlier this month, Biden had hoped OPEC nations, led by Saudi Arabia, would agree to significantly boost production. But they only made modest increases.

If OPEC decides next week that it wants higher prices, its members could take oil off the market. “Just overnight, they could just offset it,” Burkhard said. “So that’s a big question mark, is how they react to this.”

The coalition Biden assembled — bringing together India, China, Japan, South Korea and the U.K. to tap their strategic oil reserves — is unprecedented, Galimberti said. Altogether, the group could be adding 70 million to 80 million barrels of oil onto the market, he estimates.

“It’s kind of a coalition of oil importers,” he added. “But can they really supplant, or can they really represent a rival to OPEC-plus? The answer is absolutely not.” That’s because the group of importers are using their strategic petroleum reserves, which are limited. On the other hand, OPEC and its allies have oil reserves that can last for decades. “So there is no comparison between the two,” Galimberti said.

___

WILL GASOLINE GET CHEAPER?

What many consumers want to know is what’s going to happen to gasoline prices at the pump. Many factors go into the price of gasoline. Refineries buy crude oil in advance, so they’re still working with more expensive oil, and states have differing tax rates that impact the price. Nevertheless, if OPEC doesn’t respond by curtailing production, the influx of oil could lead to a gasoline price decrease of 10 cents to 15 cents per gallon, said Kevin Book, managing director at Clearview Energy Partners. Even if the price drop doesn’t happen, Biden can make the case that he tried.

“Really, what we’re talking about are the most price-sensitive consumers in the economy,” Book said. “They may not show up in GDP numbers or recessions, but they show up in vote counts as marginal voters, who may or may not respond in the next election cycle, and I think if we get down to it that’s really what this is about.”

___

WHY DOES OIL MATTER?

The future of oil and gas in the U.S. is a political flashpoint and source of tension, especially as companies and government agencies grapple with climate change and the transition to cleaner sources of energy.

On the one hand, the U.S. oil and gas industry has been praised by some political leaders for creating energy independence. Where the U.S. once relied heavily on imports, other nations now rely on the U.S. for oil. It’s also a job supplier: The oil and gas industry employs more than 10 million people in the U.S. and contributes about 8% of the nation’s gross domestic product, according to the American Petroleum Institute. Any impact resulting from Biden’s release of oil from the strategic reserves “is likely to be short-lived unless it is paired with policy measures that encourage the production of American energy resources,” the API said in a statement.

Companies that supply oil benefit from higher prices. But consumers don’t like it when those higher prices trickle down to the pump.

“The broader drama is this new variable in the oil market: It’s the tension between aspirations to decarbonize and the practical concern to have low gasoline prices,” Burkhard said. “And there there’s a conflict between those two forces. And that’s why we’re going to continue to see dislocations between demand and supply.”

___

Follow Cathy Bussewitz on Twitter: @cbussewitz


Albuquerque Journal and its reporters are committed to telling the stories of our community.

• Do you have a question you want someone to try to answer for you? Do you have a bright spot you want to share?
   We want to hear from you. Please email yourstory@abqjournal.com

Nativo Sponsored Content

taboola desktop

MORE ARTICLES LIKE THIS

1
Rio Arriba sheriff resigns as 3-year sentence is imposed
ABQnews Seeker
Judge: Officials 'must be held to ... Judge: Officials 'must be held to higher standard'
2
APD: Armed teenager shot by officer at apartments
ABQnews Seeker
Chief says 16-year-old wounded after exiting ... Chief says 16-year-old wounded after exiting home with 'mulitple firearms'
3
Governor adds stimulus spending to session agenda
ABQnews Seeker
Legal clash over the handling of ... Legal clash over the handling of the funds poised to intensify as Lujan Grisham accused of spend
4
DA’s lawsuit seeks GPS data for defendants on pretrial ...
ABQnews Seeker
District Attorney Raúl Torrez on Thursday ... District Attorney Raúl Torrez on Thursday sued the administrator of the 2nd Judicial District Court in Albuquerque, alleging that court officials are violating the ...
5
State to require booster shots for some workers
Uncategorized
More than 2,000 new COVID cases ... More than 2,000 new COVID cases reported Thursday
6
Broad coalition urges support for PNM/Avangrid merger
ABQnews Seeker
After PRC meeting, AG Balderas concerned ... After PRC meeting, AG Balderas concerned about commissioners' impartiality
7
Sandia Prep junior sings her way to Carnegie Hall
ABQnews Seeker
Sofia Chalamidas hopes to attend college ... Sofia Chalamidas hopes to attend college at either New York University or Carnegie Mellon, and become a professional singer
8
BioPark releases minnows into Rio Grande
ABQnews Seeker
Part of endangered species recovery efforts Part of endangered species recovery efforts
9
Hot air balloon 'menorah' to be lit Sunday
ABQnews Seeker
Event marks the last night of ... Event marks the last night of the eight-day celebration of Hanukkah
10
Winter angling is popular at many state lakes
From the newspaper
Source: New Mexico Department Game and ... Source: New Mexico Department Game and Fish's New Mexico Wildlife magazineJust because ...