President Joe Biden has freed 50 million barrels of oil from the nation’s strategic oil reserve in a bid to tackle the rising costs that eat away at household budgets for everything from energy to groceries.
But if drivers hope the release of a barrel of oil equates to immediate price relief at a time when the national average for a gallon of gasoline is $ 3.40 – and even higher in some states – some experts say that they better keep hoping.
“It may make a small difference for drivers as we approach 2022, when oil really hits the market,” said Andrew Lipow, president of Lipow Oil Associates, an oil consultancy firm. energy based in Houston, Texas. Refineries have already bought their oil supplies for December, he noted.
What about the potential price savings in 2022? “It can be pennies for a gallon that drivers see at the pump,” Lipow said.
The White House announcement “could have some sort of short-term impact,” said Seth Blumsack, a professor at Pennsylvania State University specializing in energy economics. His hunch is that the impact could translate into a 3-5 cent reduction in prices at the pump within a month at the earliest.
“I don’t think this release of 50 million barrels is the cure for gas prices of $ 4 to $ 5. It’s not enough and what you would need is a more sustained increase in supply over a longer period of time, ”said Blumsack, who is also director of the Center for Energy Law and Policy. of the University.
Countries like China, India, Japan and the UK are also releasing supplies, the White House said. But Blumsack said other countries – including those in the Organization of the Petroleum Exporting Countries – might take a different approach.
On Tuesday, the national average price per gallon of gasoline was $ 3.40, according to AAA. That’s more of a $ 1 increase from a year ago, according to his statistics. Californians currently pay the most, spending an average of $ 4.70, and Oklahoma residents have the lowest average costs, with a price tag of $ 2.97 per gallon.
The 50 million barrels come from the country’s Strategic Petroleum Reserve, with 32 million barrels to trade and 18 million to sell. There were 606 million barrels of crude oil in the cache at the start of the month.
The exchange for the 32 million barrels is essentially an interest-bearing loan, Lipow explained. Bidders can get the oil now, but Lipow said they will have to pay it back later, in the form of returning the same amount of oil, plus an additional amount.
“This part of the release doesn’t take more oil out of the ground, it just shifts the short-term supply,” he said.
The sale of 18 million barrels is speeding up sales that were already allowed in the 2018 deficit reduction legislation, Lipow said. The market was already anticipating this oil to go on sale, Lipow said. The acceleration in the schedule, however, might not make a dent as refineries have already made their plans for December.
“If your fridge is full of milk, you don’t need to buy more milk on December 1,” he said. “Just because that’s where buyers are interested doesn’t just because buyers have already made their plans. “
Biden was due to speak on Tuesday on the price hike and what his administration is doing to fix the problem. The pace of inflation peaked in 31 years in October, according to recent data from the Bureau of Labor Statistics. The percentage change in gas prices rose 49.6% in October from a year ago, the agency said.
Americans are keenly aware of rising prices as the holiday season approaches, and a recent survey indicates that prices are the primary way people now assess the well-being of the economy.
Last week, Biden asked the Federal Trade Commission to investigate whether oil and gas companies are wrongly racking up price increases on conductors.
Companies certainly have leeway, said Patrick De Haan, head of petroleum analysis for GasBuddy, on Twitter TWTR,
The release could offer “temporary relief,” but the long-term consequences are unclear, he said. On the other hand, he added:
Releasing 50 million barrels of oil is not a game-changer, Lipow and Blumsack said. But it is more than an empty political gesture, they said.
The statement may be a call to domestic drivers, but Blumsack said it was also a message to oil-producing countries around the world that “the administration is ready to take action, even if it’s unconventional , in the face of rising consumer energy prices “.
“The consumer sees prices going up on everything and they want the government to do something,” Lipow said. “The government has done something. Whether it works or not, we’ll see.