President Joe Biden is once again turning to US oil reserves to try to contain rising energy prices.
The White House announced Thursday that Biden has ordered the daily release of one million barrels of oil from the Strategic Petroleum Reserve for the next six months.. Biden will also ask Congress to penalize oil and gas companies that lease public land but do not produce power.
The administration hopes tapping into the oil reserve will buy time and lower gasoline prices long enough for domestic producers to ramp up production.
This is the third time Biden has tapped into the strategic oil reserve in just over four months.. In November he ordered the release of 50 million barrels. Then, in his State of the Union address in March, Biden announced another 30 million barrels as part of an effort to boost oil supply.
Tapping into the reserve is one of the few things a president can do just to try to control inflation, which impoverishes Americans and often creates political liability for the party that controls the White House.
Here’s a look at what’s going to be done:
What is the Strategic Petroleum Reserve?
The United States Strategic Petroleum Reserve is a collection of underground salt caverns in Texas and Louisiana that may contain more than 700 million barrels of oil., although it is currently not full. The stockpile held about 568 million barrels last week, down from more than 650 million barrels in mid-2021, according to the US Department of Energy.
The reserve was created after the Arab oil embargo of the 1970s to provide the United States with a supply that could be used in an emergency.
Why is it used?
The US now exports more oil than it imports, but the reserve remains and has been tapped for various reasons, from offsetting the impact of hurricanes and other environmental disasters and closing shipping channels to raising money to reduce the deficit.
In 1991, President George HW Bush authorized the removal of nearly 34 million barrels during the gulf war, although only 17 million barrels were used. In 2011, President Barack Obama approved the release of 30 million barrels to compensate for the disruption of supply from Libya.
How do they get the oil out?
Oil is lighter than water; that’s why disasters like those caused by the Exxon Valdez tanker and the Deepwater Horizon drilling rig create blemishes on the surface. To get the oil out of the reservoirs, water is pumped into salt caverns, causing the crude to float to the surface, where it is captured and piped to refineries.
Why is Biden taking advantage of the reserve?
Offer and demand. Biden hopes that by releasing more oil on the market, prices will fall. Prices fell for nearly two weeks after Biden’s initial announcement about using the reserve in November, but then resumed their sharp rise. US crude is up almost 40% this year and has become even more volatile in the last month.
Whether Biden’s latest move works will depend on several factors. One factor to keep in mind: Although 1 million barrels per day is a lot of oil, the US consumed almost 20 million barrels per day last year and world consumption exceeded 97 million barrels per day.
Will gasoline be cheaper?
What most people want to know is what is going to happen to prices at service stations. Many factors influence the price of gasoline. Refineries buy crude oil in advance, so they could still be working with more expensive oil. States have different tax rates that affect the price motorists pay.
Thursday, the national average price for a gallon of regular gasoline was more than $4.22down a penny from the peak in early March, according to the AAA car club.
The average is still less than $4 a gallon in many Midwest states, but higher in the Northeast and higher in the West. In California, it costs $5.90 a gallon.
Even if those prices don’t go down, Biden can argue that by using the reserve he was trying to help.
Who does it hurt the most?
Gas prices are regressive: Low-income people are more likely to spend a higher percentage of their money on gas than wealthy Americans, so increases hurt more price-sensitive consumers. Kevin Book, managing director of Clearview Energy Partners, says those consumers may not show up in measures of the nation’s economy, “but they do show up in vote counts … if we get down to business, of that.” it’s really about.”
Why is oil important?
The future of oil and gas in the US is a political flashpoint and a source of tensionespecially as businesses and government agencies grapple with climate change and the transition to cleaner energy sources.
On the one hand, the US oil and gas industry has been praised by some political leaders for creating energy independence. Where the US once relied heavily on imports, other nations now rely on the US for oil. It’s also a provider of jobs: The oil and gas industry employs more than 10 million people in the US and contributes about 8% of the nation’s gross domestic product, according to the American Petroleum Institute.
Companies that supply oil benefit from higher prices. But consumers don’t like it when those higher prices affect them.
The institute has previously said that any release of oil from the strategic reserve must be accompanied by policy measures that encourage greater US energy production. That clashes with Biden’s promise to reduce reliance on fossil fuels that contribute to climate change.
(With information from AP)
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