December 4, 2022

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Biden’s oil move aims to cut gas prices ‘fairly significant’

Biden's oil move aims to cut gas prices 'fairly significant'

President Joe Biden on Thursday ordered the release of 1 million barrels of oil per day from the country’s Strategic Petroleum Reserve. For six months, an attempt to control energy prices escalated after the United States and its allies imposed heavy sanctions on Russia over its invasion of Ukraine.

The president said it was not known how much gasoline prices would drop as a result of his move, but noted that it could be “anything between 10 cents and 35 cents a gallon.” The average price for gas is about $4.23 per gallon, compared to $2.87 a year ago, according to the AAA.

“The bottom line is if we want lower gas prices, we need more oil supplies right now,” Biden said. “This is a moment of consequences and danger for the world, and a pain at the pump for American families.”

The president also wants Congress to impose financial sanctions on oil and gas companies that lease public land but do not produce. He said he would invoke the Defense Production Act to encourage the extraction of important minerals for batteries in electric cars, as part of a broader drive to shift toward cleaner energy sources and reduce the use of fossil fuels.

The actions show that oil remains a weak spot for the United States. Rising prices hurt Biden’s approval domestically and added billions of dollars in oil exports to the Russian government as it wages war on Ukraine.

Exploiting the reserves could create pressures that could lower oil prices, although Biden has twice ordered the release of the reserves without causing a meaningful shift in oil markets. Biden said Thursday that he expects gasoline prices to fall “fairly significantly.”

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Part of Biden’s concern is that higher prices have not yet convinced a meaningful jump in oil production. The planned release is a way to increase supplies as a bridge until oil companies ramp up production, With administration officials estimating that domestic production will grow by 1 million barrels per day this year and an additional 700,000 barrels per day in 2023.

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Markets reacted swiftly with crude oil prices down nearly 6% in Thursday trading, to nearly $101 a barrel. However, oil has risen from nearly $60 a year ago, with supplies failing to keep pace with demand as the global economy begins to recover from the coronavirus pandemic.. This inflationary problem was exacerbated by Russian President Vladimir Putin’s invasion of Ukraine, which created new doubts about oil and natural gas supplies and led to retaliatory sanctions from the United States and its allies.

Stuart Glickman, oil analyst at CFRA Research, said the issuance would ease prices in the short term and would be akin to “taking some Advil as a headache.” But markets will eventually look to see if the underlying issues that led to Biden’s decisions remain, after the releases are halted.

“Maybe the root cause of the headache will still be there after the drug wears off,” Glickman said.

Biden has held talks with allies and partners to join in with additional releases of oil, so that the global market gets more than the 180 million barrels pledged by the United States.

Americans use an average of about 21 million barrels of oil per day, about 40% of which is dedicated to gasoline, according to the US Energy Information Administration. This total represents about one-fifth of total global oil consumption.

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Domestic oil production is equivalent to more than half of use in the United States, but higher prices have not prompted companies to return to their pre-pandemic production levels. The United States produces an average of 11.7 million barrels per day, down from 13 million barrels in early 2020.

Republican lawmakers said the problem stems from the administration’s opposition to oil permits and the construction of new pipelines such as Keystone XL. Democrats say the country needs to transition to renewable energy like wind and solar that can reduce dependence on fossil fuels and Putin’s influence.

Senator Steve Daines, a Republican for Mont, criticized Biden’s action to cash in on the reserve without taking initial steps to increase US energy production, calling it “a band-aid on a bullet wound.”

Danes described Biden’s actions as “desperate moves” that avoid what he called the real solution: “invest in American energy production,” and bring “oil and gas leases back in.”

The administration says increasing oil production is a gradual process and that the launch will provide time to ramp up production. It also wants to stimulate increased production by charging fees for unused rents on government land, something that requires congressional approval.

Oil producers have been more focused on meeting the needs of investors than consumers, according to a survey released last week by the Federal Reserve Board of Dallas. About 59% of executives surveyed said investors’ pressure to maintain “capital discipline” amid rising prices was the reason they were not pumping more, while less than 10% blamed government regulation.

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In his remarks Thursday, Biden tried to shame oil companies he said were focusing on profits rather than rolling out more barrels, saying increasing oil supply was a national obligation.

“This is not the time to sit around making record profits: it is time to step forward for the good of your country,” the president said.

A steady release of reserves will be a meaningful amount and close to closing the domestic production gap relative to February 2020, before the coronavirus causes a sharp drop in oil production.

However, the politics of oil is complex as both industry advocates and environmentalists criticize the planned release. Groups like the American Petroleum Institute want to make drilling easier, while environmental organizations say energy companies should be forced to pay a special tax on windfall profits instead.

In November, the administration announced the release of 50 million barrels From the strategic reserve in coordination with other countries. And after the start of the Russo-Ukrainian war, the United States and 30 other countries agreed to an additional release of 60 million barrels of reserves, half of the total coming from the United States.

According to the Energy Department, which manages it, more than 568 million barrels of oil were held in reserve as of March 25. After the release, the government will start replenishing the reserve once prices have fallen sufficiently.

Management planning news was first reported by Bloomberg.

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Associated Press authors Alex Vega, Darlene Superville, Matthew Daly, and Michael Balsamo contributed to this report.