Will releasing Biden’s oil reserves ease prices? Experts say it is unlikely

Americans are unlikely to see a significant drop in gas prices immediately following the Biden administration’s decision to release 6 million barrels of oil from the national reserve.

However, several factors are already at play that can drive prices down.

The White House announced the release of 50 million barrels from the Strategic Petroleum Reserve (SPR) on Tuesday morning. The announcement was made in concert with South Korea, China, Japan, India and the United Kingdom, all of which will also release oil from their own strategic reserves.

Rising crude oil prices, and to some extent gasoline prices, have already slowed their rise amid negotiations in recent weeks, Tom Kloza, co-founder of the Price Information Service, told The Hill. Petroleum.

“Between Thanksgiving and Groundhog Day, you typically see gasoline prices fall, because essentially, demand falls to about 2 million barrels a day less than it would be in the summer,” he added. Kloza.

“I think we’re seeing maybe 60 to 75 days of wobble a little lower,” he added, noting that both a steep drop and a sharp rise are unlikely.

Patrick De Haan, head of oil analysis at GasBuddy, told The Hill that oil prices had already been in decline before Tuesday’s announcement and that other factors were also contributing to a decline. One of the biggest, he said, was an increase in coronavirus cases in Europe, increasing the likelihood of new travel restrictions or closures that would reduce demand.

“Having said that, I think motorists very soon in the next few days will start to see the national average price of gasoline go down and it could drop from five to 15 cents a gallon over the next week or two, and potentially more,” he said.

However, that is not guaranteed because before the announcement was official, oil prices were lower, around $ 76 a barrel, and “now that the announcement has been made, it seems that the oil market is reacting with some disappointment, “he said. .

Another potential factor, De Haan said, is the increase in travel and gasoline demand that will accompany the Thanksgiving holiday this week.

“I think the fact that Thanksgiving is looming is part of the reason the stations have not yet started broadcasting the price declines because they know millions of Americans will hit the road,” he said. “So I think they have an incentive not to pass on decreases right away, knowing that one of the busiest travel days of the year is only 24 hours away.”

As demand continues to rebound to pre-pandemic levels, Kloza said, spring next year may bring another strong rally, due to the fact that “we are a little behind the eight ball in terms of refining in the United States. “.

“This is not the fault of the Biden administration, it is not the fault of the Warren Harding administration, it is simply the nature of the beast,” he added.

Republicans have blamed the Biden administration’s moves like canceling the Keystone XL pipeline and since then freezing new oil and gas leases on federal land on gas prices, but Kloza said the reality is more complicated, noting that the Keystone pipeline would not have produced enough to affect supply at this point.

“For drivers wondering whether gas prices will drop as a result of the SPR launch in the US, the reality is that this may not happen at all, or only with a significant delay,” Lefteris Karagiannopoulos, Manager Rystad Energy’s senior media relations officer said in a market note Tuesday morning.

The release, he said, will be in barrels of crude, which will only affect gasoline supply if it encourages refineries to produce more. This, he said, “could only happen with a delay and in the event that margins improve while refineries expect gasoline demand to develop positively in the short term.”

The initial price impact of the SPR launch is likely to be “not so much,” said Antoine Halff, associate principal investigator at Columbia University’s Center for Global Energy Policy.

At a press conference on Tuesday, the Secretary of Energy Jennifer granholmJennifer Granholm Biden Administration to Release Oil from Strategic Reserve: Reports White House Seeks to Bailout Plan Funds to Lighten Burden of High Heating Costs Biden, Senior Officials Dispersed to Promote Infrastructure Package MORE he blamed the industry side for the crisis, saying “the oil and gas industry has leases on 23 million acres of public land on and off the coast.”

“More than 9,500 permits have been issued that are not being used. At the same time, the energy industry is making huge profits. They are back above where they were before the pandemic started, “he added.

However, Halff noted that this use of the SPR is unprecedented, as there is no supply disruption in the form of war or a major disaster like Hurricane Katrina. Instead, the release is intended to function as a form of price management.

“It’s not perfect, and it may not really work, but it really speaks to a new kind of problem in the market, if commercial stocks and supply are not enough to balance the ups and downs of oil demand,” he added. .

Of the 50 million barrels to be released, 32 million will eventually be restored to reserve supply, while the remaining 18 million represent an acceleration of a sale already authorized by Congress.

Separately, Biden also asked the Federal Trade Commission for an investigation into whether the oil companies were involved in illegal price collusion.



Reference-thehill.com

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