The Biden administration is planning to release another 10 to 15 million barrels of crude from the strategic petroleum reserve, Bloomberg reported today, citing unnamed sources in the know. This release would be the latest in the government's 180-million-barrel program that was announced in March.
The SPR release plan will soon come to an end, but U.S. fuel prices are still climbing.
Analysts have misgivings about extending the SPR release. Yesterday, Energy Aspects’ Amrita Sen told CNBC the Biden administration was considering releasing another 100 million barrels from the SPR, which would flood the market.
Sen noted that currently, the U.S. strategic petroleum reserve is being used to keep retail fuel prices down, which is not the purpose it was created for.
Meanwhile, the administration is also talking with oil companies as part of its SPR release plan that, besides lowering prices, is designed to create long-term demand for producers, Reuters reported, citing unnamed sources.
The talks, according to the sources, focus on both the future releases from the SPR and the replenishment of the reserve after the releases are over. The level of inventories at the SPR has declined from 640 million barrels when President Biden took office to 450 million barrels - the lowest in about 40 years.
According to one of Reuters’s sources, the release could amount to 40 million barrels from the reserve.
"The administration has a small window ahead of midterms to try to lower fuel prices, or at least demonstrate that they are trying," one unnamed source told Reuters. "The White House did not like $4 a gallon gas and it has signaled that it will take action to prevent that again."
The average gasoline price in the United States on Monday was $3.888 per gallon, down from $3.919 per gallon a week ago but up from $3.682 per gallon a month ago, according to AAA data.
By Irina Slav for Oilprice.com
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And if the Biden administration is trying to offset the OPEC+ cut, then it will fail again. Releasing 10-15 mb even at the rate of 1.0 million barrels a day (mbd) will hardly be felt in a tight global oil market and fast-shrinking global spare production capacity including OPEC+.
However, the risk to the US from further SPR releases is mounting first because the SPR is now at its lowest level since 1984 and second because the US Department of Energy (DoE) will find it virtually impossible to replace them. The reason is that US shale oil is a spent force and a tight global market doesn’t by definition have enough oil to spare.
President Biden’s objective is to bring fuel prices in the US lower than $4.0 per gallon to ensure that his party ‘the Democrats’ win the Congressional elections in November and for him to secure a second term in office for himself. But crude oil prices at $75 a barrel namely the level President Biden would like neither enable the overwhelming majority of OPEC+ members to balance their budgets nor does it help them maintain a decent standard of livelihood for their peoples.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert