Under mounting pressure to lower high energy prices, President Biden announced on Thursday that the United States would release up to 180 million barrels of oil from a strategic reserve to counter the economic fallout from Russia’s invasion of Ukraine.
With the midterm elections only a few months away, gasoline prices have risen nearly $1.50 a gallon in the past year, undermining consumer confidence. And the cost of diesel, the fuel used by most farmers and shippers, has risen even faster, threatening the already high inflation on all kinds of goods and services.
“I know how much it hurts,” Biden said on Thursday when he announced the plan. “As you’ve heard me say before, I grew up in a family like many of you where the price of a gallon of gas went up. It was a discussion at the kitchen table.”
Mr. Biden has few tools to control commodity prices in global markets, so he turns to the Strategic Petroleum Reserve and orders the largest release since that emergency stockpile was built in the early 1970s. But the move will most likely have a modest impact because it won’t be able to offset all the oil, diesel and other fuels that Russia used to sell to the world but can’t anymore.
“Our prices are rising because of Putin’s action,” Mr Biden added, referring to Russia’s President Vladimir V. Putin. “There is not enough supply. And the bottom line is that if we want lower gas prices, we need to have more oil now.”
Mr Biden’s plan to release one million barrels of oil per day for 180 days would account for about 5 percent of US demand and 1 percent of global demand. To put that into context, Russian oil exports are falling by about three million barrels a day. The US benchmark oil price fell about 6 percent on Thursday.
The government’s announcement came as Russia sent mixed signals about its objectives for the war in Ukraine, which is now in its sixth week. Despite the Kremlin claiming it withdrew from the outskirts of Kiev, the capital, fighting continued in that area on Thursday, and Western officials said they saw little evidence of a Russian backlash.
“Russia is keeping pressure on Kiev and other cities, so we can expect additional offensive actions, which will inflict even more suffering,” NATO Secretary General Jens Stoltenberg said at a news conference.
Russian officials also said they would grant a reprieve for increased humanitarian access to the ruined southeastern port of Mariupol, once home to 400,000 people, which has become a symbol of Russia’s battlefield tactics of indiscriminate destruction. Previous agreements on pauses in the fighting over Mariupol have repeatedly failed.
Largely as a result of the incessant war, energy experts expect oil prices to remain elevated for a while without major interventions such as the release of US reserves.
The oil industry’s reaction to Mr Biden’s announcement was muted. The reserve has been mainly used to increase the oil supply during wars, foreign threats to the energy supply or natural disasters. Smaller releases of reserves by the Biden administration that began late last year have had little impact on the prices drivers and companies pay for fuel.
“It will lower the price of oil a little bit and stimulate more demand,” said Scott Sheffield, chief executive of Pioneer Natural Resources, a major Texas oil company. “But it’s still a band-aid on a significant supply shortage.”
The American Petroleum Institute, which represents oil and gas companies, said Biden should encourage domestic oil production by easing regulations. The reserve “was established to mitigate the impact of significant supply chain disruptions,” said group chairman Mike Sommers, “and while today’s release may provide some short-term relief, it’s far from a long-term solution for the economic pain Americans feel at the pump.”
After falling to historically low levels during the early months of the coronavirus pandemic, oil prices have soared over the past year, reaching their highest level in nearly a decade.
Oil exploration and production in the United States and elsewhere has declined during the pandemic and has still not fully recovered. US companies, under pressure from investors, have been cautious about spending too much money to drill new wells or prices would fall again. Instead, many have paid larger dividends and bought back their shares.
While that calculation may make sense for individual companies, it has created political problems for Democrats who had hoped to reduce fossil fuel use to tackle climate change. Now, under attack from Republicans for high prices, Mr. Biden and Democrats are trying to get the oil industry to drill more.
Both sides of the political divide are looking to November’s congressional elections, when inflation is expected to be a major problem.
Commenting on the news of the release from the reservation, a spokesman for Representative Kevin McCarthy, the Republican leader in the House, accused the president of “attacking U.S. energy production to fulfill his campaign promise to “get off fossil fuels.” to come’. “
Mark Bednar, the spokesman, added: “As a result, the American people are paying the price, as gas is over $4 a gallon, and we are more dependent on other countries for energy.”
But West Virginia Democrat Joe Manchin III welcomed Biden’s announcement, saying it would “provide much-needed relief while ramping up domestic oil and gas production to replenish Russia’s energy resources.”
Biden’s aides hope to assuage Republican criticism by taking actions to try to lower prices. In a statement about the oil flotation Thursday morning, the White House said Mr. Biden was “committed to doing everything in his power to help American families who are paying more out of pocket as a result.”
They are also trying to put some of the blame for the high prices on oil companies, which the government says are no longer producing energy to boost their profits. The administration plans to call on Congress to require companies to produce oil on more than 12 million acres of federal land already cleared for extraction or paying fines, a proposal likely to take a steep climb .
Energy experts said the release of reserves would have more impact if other countries, such as China, also sold oil from their stocks. The International Energy Agency, an organization of more than 30 countries, is meeting Friday and can recommend further releases from national reserves.
Russian oil exports normally represent more than one in every 10 barrels the world consumes. The United States, Britain and Canada have stopped importing Russian oil, and many oil companies and shippers in Europe have voluntarily stopped buying Russian energy products. So far, that has resulted in a deficit of about three million barrels per day.
The average price of regular gasoline in the United States is $4.23 a gallon, according to the motorcycle club’s AAA. That’s about the same as a week ago, but an increase of 62 cents per gallon in the past month.
Oil prices had fallen this week after peace talks between Russia and Ukraine showed the first signs of progress. Energy traders are also concerned that demand could fall as China, the world’s largest oil importer, imposes lockdowns in Shanghai and other places to deal with coronavirus outbreaks.
“The price effect is likely to be short-lived,” David Goldwyn, a senior State Department official in the Obama administration, said of Mr Biden’s announcement. “But part of the benefit of this release is that it will bridge when new physical offerings from the US, Canada, Brazil and other countries come online in the second half of this year.”
Some environmentalists criticized the release of the reserve. “Bringing more oil to the market is not the solution to our problem, but the preservation of our problem,” said Mark Brownstein, senior vice president at the Environmental Defense Fund.
But Meghan L. O’Sullivan, director of the Geopolitics of Energy Project at Harvard’s Kennedy School, said releasing reserves to reduce shortages wouldn’t jeopardize the clean energy transition. “What the past month has taught us is that if there is no energy security today, the appetite to take hard steps on the path of transition will disappear,” she said.
The release is not without risk. Goldman Sachs analysts wrote in a research note that a large discharge could create “congestion” on the Gulf Coast, which could keep new oil production from fields in West Texas out of pipelines and storage tanks.
Mr Biden’s move could also discourage Saudi Arabia and other producers from increasing supply to lower prices. OPEC Plus, a group led by Saudi Arabia that also includes Russia, decided on Thursday to maintain a policy of only a modest increase in supply.
Bob McNally, who was an energy adviser to President George W. Bush, said the release was “not large enough to offset the potential loss of Russia’s oil exports if conflict and sanctions pressure continued to mount.”
The oil market tends to go in cycles, so the release could allow the government to sell high and buy low later, potentially making billions of dollars for the treasury. The government will use the money it earns from oil sales to replenish the reserve, which in turn could help raise prices again.
Pushing those prices up, Jason Bordoff, founder and director of Columbia University’s Center on Global Energy Policy and former aide to President Barack Obama, said any addition could also “send a signal to shale producers that could encourage them to invest in more production, which can help with the current potential shortages.”
The US reserve holds nearly 600 million barrels, about a month of total US consumption, and can release up to 4.4 million barrels per day. The stock was built after the energy crisis of 1973, when Saudi Arabia and other Arab producers declared an oil embargo.
Megan Special contributed reporting from Krakow, Poland, and Steven Erlanger from Brussels.
