President Biden on Tuesday said he was releasing some U.S. oil reserves, part of a multilateral effort the White House is leading to reduce global prices.
Tapping the strategic pool of petroleum, which is an effort to create more supply of oil and push down prices, is one of the most dramatic steps available to the White House as it tries to reduce costs for consumers. Biden’s announcement marks the second White House move in a week to try to publicly address gas prices. Last week, he called on the Federal Trade Commission to investigate whether oil companies were improperly raising prices to rip off consumers.
“We’re launching a major effort to moderate the price of oil, an effort that will span the globe and its reach and ultimately reach your corner gas station,” Biden said Tuesday.
The administration said the Department of Energy will release 50 million barrels of oil from the Strategic Petroleum Reserve — an emergency pool kept by the United States. Biden is making the move in conjunction with similar moves by several other countries including China, Japan, South Korea and Britain. India, for instance, also announced it would release 5 million barrels of oil from its strategic reserves.
Many presidents from both political parties have taken steps to try pushing down gas prices. Biden on Tuesday said these costs for consumers could be volatile but tried to emphasize that he was working to intervene.
“The fact is, we always get through these spikes,” Biden said. “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.”
The oil release comes as Biden is under mounting pressure from Republicans over inflation and as Americans are preparing for the Thanksgiving travel. Some leading Democrats had called for the White House to tap the petroleum reserves weeks ago, but the White House instead studied the issues and tried to prod oil-rich nations into boosting production. The president’s action on Tuesday could trigger a showdown with Saudi Arabia and other nations, which could allege the White House is attempting to improperly distort energy markets.
The average price for a gallon of gas was $3.40 on Tuesday, down a penny from Monday, according to AAA. Costs are even higher in states such as Pennsylvania, California and Nevada. The average price is up two cents per gallon from one month ago but markedly higher than the $2.11 per-gallon price one year ago, when demand was low because of the pandemic. Since then, however, as demand has picked up, the price has risen sharply.
It is unclear how much the White House effort would immediately affect prices. Oil prices have begun to tick down independent of the administration’s efforts, in part due to fears that new lockdowns in Europe will crimp demand. Energy experts have also said production is ramping up as the global economy emerges from the pandemic, which should alleviate price pressures.
But some experts also said that the White House’s coordinated release Tuesday was signaled for weeks and played a role in preventing gas prices from ballooning. “It broke the back of an oil-price run-up that otherwise would have happened,” said Jason Bordoff, who was a top energy official in the Obama White House.
The White House said it would release 32 million barrels as part of an exchange, which means that companies can borrow crude oil from the Strategic Petroleum Reserve and later replace it, including an additional quantity of oil as a premium for the loan. The reserves are stored in salt caverns along the Gulf of Mexico, and generally these exchanges take place in the wake of hurricanes. Another 18 million barrels will be sold as ordered by Congress as part of budget bills.
Biden made the announcement just hours before he left for his Thanksgiving holiday on the Nantucket island in Massachusetts. The timing of his remarks, just before Thanksgiving, was no accident.
“This week millions of Americans, including some of the people in this room, are likely to be hitting the road,” Biden said.
Some 48.3 million Americans are expected to drive to their Thanksgiving destinations this year, according to AAA. That’s 8 percent higher than last year but below pre-pandemic levels.
Biden has blamed the higher costs on oil producers, alleging that supply has not kept up with demand as the economy emerges from the pandemic slump. “Oil-producing countries and large companies have not ramped up the supply of oil quickly enough to meet demand,” Biden said. Oil industry officials have denied this, and business groups have said the White House should focus more on domestic production and not on taking steps like releasing oil from the strategic reserves.
Industry analysts say the U.S. reserve release is likely to meaningfully impact consumer prices only if it paired with substantial measures from international partners, although precisely how much oil other countries plan to release remains unclear.
Analysts warned that the move could also have long-term downsides if it elicits pushback from the Organization of the Petroleum Exporting Countries, a cartel of the world’s leading crude oil producers that controls more of the global market than the United States and its allies.
OPEC officials have warned of a response to Biden’s decision to tap the reserves, arguing that the release of millions of barrels in reserves is unjustified, according to Bloomberg. Biden has repeatedly called on OPEC to increase production to offset higher demand.
Biden administration officials have been in intense discussions with Saudi Arabia over the last several weeks, trying without success to persuade Riyadh to reverse an earlier decision to stick to a production schedule of relatively small, gradual increases. There is little expectation that the Saudis will change their mind when OPEC meets again on Dec. 2, according to senior officials who spoke on the condition of anonymity about the sensitive diplomacy.
The Saudis felt burned last year when the Trump administration pressed them to cut output to protect U.S. producers as the bottom dropped out of the market due to covid-related contractions. They fear a repeat next year if they boost production too rapidly and the U.S. and global economies don’t expand significantly, officials said.
In the meantime, they are enjoying the current high prices and have made clear to the administration that they see no economic upside to pumping more oil now.
Administration officials acknowledge that some of the brushoff may also have to do with tensions between the United States and the Saudi government of Crown Prince Mohammed bin Salman. After close ties and mutual admiration with Trump, MBS, as he is known, is believed to resent Biden’s failure to reach out to him personally since he became president and a perceived overall lessening of U.S. security support.
Biden and U.S. lawmakers remain highly critical of the 2018 Saudi killing of dissident journalist Jamal Khashoggi, a U.S. resident, which the CIA concluded MBS had ordered. Biden has tried to straddle the divide between pulling back on the tight Trump-era relationship while also protecting what the administration sees as U.S. national security interests in the Persian Gulf. In early November, it authorized a new, $650 million arms sale to Saudi Arabia.
Last week, however, a number of U.S. senators moved to block the sale.
This tension between the White House and Saudi government has factored into energy costs, even though much of the diplomatic wrangling has occurred outside of public view. Biden’s action on Tuesday amounted to a much more public intervention.
“The bottom line for motorists is this moves the needle — but barely, and maybe not for a very long period of time. … It’s certainly something, but how much that something is will be contingent on how much the other countries put in,” said Patrick De Haan, an industry expert at GasBuddy. “And there’s a threat this could lead to a risk of prices being elevated for longer if OPEC holds back meaningful production increases as a result.”
World oil output in October jumped to 97.7 million barrels a day as the U.S. economy recovered from hurricanes, the International Energy Agency said. While U.S. output is high, inventories are low.
Republicans were quick to criticize Biden’s Tuesday move as insufficient, and they continued to blame him for high prices. Former president Donald Trump released a statement Tuesday calling the move an “attack” on the reserves while alleging that Biden has put the United States “at the mercy” of OPEC.
“President Biden’s policies are hiking inflation and energy prices for the American people. Tapping the Strategic Petroleum Reserve will not fix the problem,” Sen. John Barrasso (Wyo.), the highest-ranking Republican on the Senate Energy and Natural Resources Committee, said in a statement.
The criticisms reflect the political difficulty facing the Biden administration, which is trying to end U.S. dependency on fossil fuels in the long term while also keeping prices manageable for American consumers in the short run.
Biden addressed this criticism head on. “My effort to combat climate change is not raising the price of gas or increasing its availability,” Biden said Tuesday.
Still, Biden is navigating difficult terrain as he balances his short-term goals of reducing prices at the pump with his longer-term climate ambitions. The president started the month in Glasgow, Scotland, trying to convince other nations to turn away from fossil fuels. He ended the month leading a multilateral effort to bring down the costs of those same fossil fuels.