US to release an additional 20 million barrels of oil from reserve to mitigate rising prices

The energy crisis triggered by Russia's invasion of Ukraine is now affecting the entire planet. No one can dodge the blow, only cushion it. Exponentially rising prices, supply chain disruptions, political turbulence and the incomplete transition to renewable energy have accentuated the severity of a scenario with unforeseen consequences. Sri Lanka has been the first to collapse, and at least a dozen states are candidates to follow in its path in the coming months if solutions are not found. 

The White House announced on Tuesday that it will put an additional 20 million barrels of oil from the Strategic Petroleum Reserve on the market to increase global oil supplies and stimulate lower prices. It is the fifth authorisation issued by President Joe Biden for the marketing of the reserved 'black gold' since the end of March, a month after the start of the war in Ukraine, with the aim of mitigating domestically the consequences of the energy crisis, which brought with it the highest price of gasoline in 13 years.

Biden then gave the green light to the largest release of oil reserves in US history with the release of one million barrels per day from the Strategic Reserve, some 180 million barrels over a six-month period through October. "There is no precedent for this level of withdrawal," the White House said in a statement. This commercialisation, according to the US government, has been coordinated with the International Energy Agency (IEA) partners, whose release figures are as high as 60 million barrels. 

As a result of this policy, the capacity of the US Strategic Petroleum Reserve (SPR) has fallen to its lowest level in nearly four decades, according to Energy Department data. Last week, the volume of the stockpile fell by about 5.6 million barrels, bringing the total amount to about 474.5 million barrels, the lowest since 1985. The marked ceiling of reserves that the SPR can hold is more than 700 million barrels.

Created in 1975 during the Oil Crisis, forced by the OPEC member states' oil embargo on Israel and its partners in the Yom Kippur War, the Strategic Petroleum Reserve serves to conserve oil in the event of an energy emergency. Its reserves, stored in four underground salt caverns in Texas and Louisiana, can be released if certain conditions are met. On this occasion, as with the COVID-19 pandemic before it, these conditions have been met, giving Biden some leeway to draw on the SPR. 

According to the White House statement, the pump price for US citizens is about 40 cents per gallon lower "than it otherwise would have been". That is, the equivalent of about 40 cents in savings for the consumption of almost four litres of gasoline. However, the Treasury Department acknowledges that "it is unclear to what extent these changes in oil prices were passed through to retail gasoline and diesel prices".

"If the global oil market ignored the SPR and IEA's combined 240 million barrels, will selling 20 million barrels do any better?" international oil economist and World Bank consultant Mamdouh Salameh asks Atalayar. In April, Washington and its IEA partners agreed to a "collective historic release" of 240 million barrels to be traded in May and June, without significant results. Salameh tells this media that the new release is a cosmetic measure that will have little impact on the markets. 

Of the total 20 million barrels announced, the Energy Department intends to release 2.8 million barrels of sour crude and 17.2 million barrels of sweet crude stored in the Big Hill, West Hackberry and Bryan Mound reserves. The executive has this week proposed new regulations, a legal framework tailored to modify the procurement system that would allow reserved crude to be sold at a fixed price without the price being adjusted to the value at the time of the transaction to provide certainty to buyers.

The additional 20 million barrels are scheduled to be delivered after fiscal year 2023, which means that "the buyback agreements will encourage greater near-term investment in supply, but will not increase demand for barrels now or in the near future". The law stipulates that the sale contract is awarded to the company that submits the highest bid. All US companies enrolled in the Strategic Petroleum Reserve (SPR) Crude Oil Sales Offer Program, some of which are subsidiaries of US-based foreign companies, are eligible to bid. 

In this way, the Biden administration hopes to contain rising energy prices and stem the domestic crisis spurred by record inflation. In less than three months, the United States will hold the midterm elections, in which the Democratic Party is gambling its slim majorities in the Senate and the House of Representatives, which are necessary to push through its anti-crisis prescriptions. The White House has had to make a move in the face of the inaction of giants such as ExxonMobil and Chevron, which did not respond to the Biden Administration's demands to increase production.

Americas Coordinator: José Antonio Sierra.