Biden says he’ll release another 10m barrels from dwindling ‘oil piggy bank’ after OPEC production cuts – but that’s the big risk with more withdrawals

Biden says he’ll release another 10m barrels from dwindling ‘oil piggy bank’ after OPEC production cuts – but that’s the big risk with more withdrawals

In an effort to counter rising prices at the pump, President Biden plans to plunder the country’s “oil piggy bank”.

In November, the Department of Energy will deliver 10 million barrels of the Strategic Petroleum Reserve (SPR) to market. The SPR – the world’s largest emergency crude oil supply – was established in 1975 in the event of a severe oil supply crisis or economic disruption.

Biden’s decision comes after the Organization of the Petroleum Exporting Countries (OPEC+) said it would cut oil production by 2 million barrels a day, putting additional pressure on global energy supplies.

However, with the country’s emergency reserve already at its lowest level since 1984, some experts are concerned about the long-term implications.

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US gas prices rise again

Gas prices hit a record high of $5.02 a gallon in June after Russia invaded Ukraine, but this summer has seen a 99-day streak of price declines due to recession fears. and falling oil prices.

However, even before OPEC+ declared it would cut oil production, gas prices started to rise again in late September. This may be due to a combination of growing demand, refining issues and the upcoming EU ban on Russian oil.

Now, with the recent OPEC+ decision, prices are expected to rise further. The group says the production cuts are being made due to “uncertainty surrounding the outlook for the global economy and the oil market”.

As of Oct. 7, the national average gas price was $3.89 a gallon, about 10 cents higher than the previous week, according to AAA.

Biden disappointed by ‘short-sighted’ production cut

Hours after the OPEC+ announcement, the White House said the president was disappointed with “OPEC+’s short-term decision to cut production quotas” as the global economy still grapples with the effects of the Russian invasion of Ukraine.

The press release said 10 million barrels of oil would be drained from the SPR and the Energy Secretary would explore other options to increase domestic production.

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Biden also urged gas companies to keep pushing gas prices down.

Why making large withdrawals from the reserve could be risky

Since March, the Energy Department has released 160 million barrels of crude oil, more than a quarter of inventory, depleting the SPR to its lowest levels in four decades.

As of September 30, the reserve had fallen to 416 million barrels, according to department data.

The Independent Petroleum Association of America (IPAA) said in November 2021 that it strongly opposes the exploitation of oil stocks to counter gas prices. The group feared that the depletion of the emergency reserve could put the United States at risk if global or domestic oil supply reached dangerously low levels before supply could be restored.

The IPAA recommends increasing domestic production of natural gas and oil instead, although oil producers are already facing supply chain issues, limited capital and pressure from investors to increase yields. .

Francisco Blanch, managing director and head of global commodities at Bank of America Global Research also voiced criticism in a segment on Bloomberg Television.

“I don’t think that’s a good idea given the incredibly tense geopolitical world we live in today,” Blanch said. By depleting the reserve, the U.S. could put itself “more in the hands of OPEC+…eventually you’re ceding more and more control of the market.”

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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