Will tapping the US oil reserve lower gas prices? Analysts are skeptical about impact




  • In Business
  • 2021-11-24 15:17:24Z
  • By USA TODAY
 

After weeks of growing concerns over rising gas prices across the country, President Joe Biden on Tuesday ordered the Energy Department to release 50 million barrels of crude oil from the country's emergency reserves.

"American consumers are feeling the impact of elevated gas prices at the pump and in their home heating bills, and American businesses are, too, because oil supply has not kept up with demand as the global economy emerges from the pandemic," the White House said in announcing it was tapping the Strategic Petroleum Reserve.

The move was highly anticipated by oil and gas industry watchers.

While prices are likely to go down over the next few months, the White House's announcement was underwhelming, according to analysts. They were skeptical the action will have a sweeping or immediate effect - given some action was expected - and noted the White House "has limited options" in bringing down gas prices.

Will drivers see gas prices decline?

Speaking Tuesday afternoon, Biden noted the country has weathered worse gas spikes in 2012, 2014 and 2019, and he promised the U.S. would quickly see prices decline. "But it doesn't mean we should just stand by idly and wait for prices to drop on their own. Instead, we're taking action," he promised.

"While our combined action will not solve the problem of gas prices overnight, it will make a difference. It will take time but before long you should see the price of gas drop when you fill up your tank," Biden said.

More: Is 'illegal conduct' the reason for rising gas prices? Biden urges regulators to find out

"And in the longer term, we will reduce our reliance on oil as we shift to clean energy. But right now, I will do what needs to be done to reduce the price you pay at the pump," he said.

Analysts are skeptical that the release of oil from the Strategic Petroleum Reserve will significantly reduce costs in itself.

"I think this will have very limited impact on the prices that American consumers pay," said Richard Bronze, head of geopolitics at Energy Aspects, an energy consulting firm.

"We may see gasoline prices fall a little bit too, through to the end of the year, but that's because that's what we normally see at this time of year," he added.

Holiday travel: Thanksgiving travelers face higher gas prices, but Americans will hit the road anyway

Barrel release was expected

The 32 million oil barrels are being offered to energy companies, so long as they later refill the reserve. That increases immediate supply but doesn't affect a firm's overall pricing.

"This doesn't actually add a whole lot of unexpected oil to the market," said Patrick De Haan, head of petroleum analysis for GasBuddy, a tech platform that tracks oil prices.

"This isn't actually adding oil to the market because it's got to be taken back out down the road," De Haan said of the 32 million barrels.

The additional 18 million barrels that will be made available were already approved for distribution by Congress and thus also expected, he pointed out.

"This is disappointing because it's not a curveball. The market expected a big release, and we got a small release with some accounting tricks, if you will," he continued.

Want a politics roundup every night? Sign up for our OnPolitics newsletter.

Biden acknowledged that the price of crude oil has declined over the last few weeks in anticipation of his announcement. He noted the discrepancy in the declining cost of crude oil and price of gas at the pump, speculating that some oil companies may be engaged in "unacceptable" price gouging.

"The price of gasoline on the wholesale market has fallen by about 10%," Biden said in his remarks, "but the price at the pump hasn't budged a penny. In other words, gas supply companies are paying less and making a whole lot more. And they don't seem to be passing it on to the consumer."

Inflation's political fallout: Inflation hit a 31-year high in October, but will it sway voters in the 2022 congressional elections?

Crude oil prices hit hard by COVID-19 pandemic

In the week before the White House's announcement, oil prices had declined nationally as energy companies expected a significant increase in supply from the administration and markets worried about a rise in COVID-19 cases globally. Oil prices rose 3% Tuesday on the White House's news.

Other countries have taken steps to increase the supply of oil in the market as well, though Biden's announcement is the largest infusion to date. India promised to release 5 million barrels for use, while South Korea and the United Kingdom promised to release 1.5 million each. Japan and China have also signaled they will release supplies, though they have not indicated specific numbers.

The COVID-19 pandemic upended global supply chains, with the supply of oil, produced at a lower level during the pandemic, outstripped by energy-hungry countries reemerging from lockdown.

More: White House sees solving pandemic, supply chain disruptions as key to ending inflation spike

Can the White House help the price at the pump?

Most of the factors driving up the price of gas are not of the White House's making and, similarly, beyond its significant control to influence in the near-term.

"What we're seeing is the White House has limited options, particularly in the short term, to alter or adjust those prices, which are much more exposed to what's happening in the global oil market," Bronze said.

American consumers could still see gas prices drop due to the lag between the change in the cost of crude oil and how that is reflected at the gas pump. Prices "may well drift a bit lower both because of the falling oil prices crude prices since October," Bronze said.

The administration has said it is exploring further steps to curtail rising gas prices. In the longer term, Biden officials point to the Democrats' social spending package and bipartisan infrastructure law as solutions to reducing inflation more broadly in the long term.

But rising wages and increased consumer demand "doesn't reduce the frustration any more when somebody's going to the gas station and they see prices go up. But it does mean that we are well-positioned to try to address these challenges going forward," said Brian Deese, director of the White House national economic council, during a Sunday NBC News interview.

"It's about being seen to do something, to take some action to try and reframe the narrative around inflation, the narrative around rising costs, and the narrative attached to the discussion in Congress over the Build Back Better plan," Bronze said.

Last week, Biden signed an executive order directing regulators to investigate oil and gas companies for potentially illegal price gouging. In October, Energy Secretary Jennifer Granholm did not rule out a potential ban on crude oil exports to shore up US supply, though the White House has since downplayed the possibility.

Follow Matthew Brown online @mrbrownsir.

This article originally appeared on USA TODAY: Gas prices: US oil reserve release has limited impact, analysts say

COMMENTS

More Related News

Biden Was Forced To Bring Back Trump
Biden Was Forced To Bring Back Trump's "Remain In Mexico" Policy, But Now He's Expanding The Pool Of Immigrants Who Can Get Caught Up In It

"It is very mixed messaging when leaders from the US and Mexico who so strongly oppose the Trump-era Remain in Mexico policy reimplement it with an even...

Time is no ally as Dems strain to finish Biden
Time is no ally as Dems strain to finish Biden's $2T bill

If President Joe Biden's $2 trillion social and environment package was a Broadway show, its seven months on Congress' stage could qualify it as a hit. Each...

Haley has
Haley has 'positive' meeting with Trump
  • World
  • 2021-12-03 21:01:04Z

Former President Trump and former United Nations Ambassador Nikki Haley met at Trump's Mar-a-Lago resort last week amid speculation both are eyeing White...

Biden warns Russia
Biden warns Russia's Vladimir Putin against Ukraine invasion
  • World
  • 2021-12-03 19:55:25Z

There are signs that the White House and Kremlin are close to arranging a conversation next week between Biden and Putin

White House says federal law enforcement talking to local officials about smash and grab robberies
White House says federal law enforcement talking to local officials about smash and grab robberies

The Biden administration has been in contact with federal law enforcement officials over a string of flash mob "smash and grab" robberies of U.S. retail...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business