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