EXPLAINER: What is the Strategic Petroleum Reserve?

When President Joe Biden ordered the release of 50 million barrels of oil from America’s strategic reserve to help reduce energy costs, he was taking aim at a growing burden for millions of Americans embarking on Thanksgiving travel.

Associated Press

Nov 24, 2021, 3:52 PM

Updated 873 days ago

Share:

EXPLAINER: What is the Strategic Petroleum Reserve?
When President Joe Biden ordered the release of 50 million barrels of oil from America’s strategic reserve to help reduce energy costs, he was taking aim at a growing burden for millions of Americans embarking on Thanksgiving travel.
The step announced Tuesday, done in a rare coordination with several other nations, is among the few things a presidential administration can do to try to lessen the squeeze — and the political threat — of rising inflation. The likelihood of providing meaningful relief in the near future, however, is probably low. Still, any help in easing fuel prices, even modestly, would be welcomed by many Americans.
Here is a look at what's involved:
___

JUST WHAT IS THE PETROLEUM RESERVE?

America’s Strategic Petroleum Reserve holds about 605 million barrels of oil in underground salt caverns in Texas and Louisiana. It was created following the 1970s Arab oil embargo to store oil that could be tapped in an emergency. But the dynamics of the global oil industry changed dramatically in recent years: Now the U.S exports more oil than it imports.
There’s a limit to how much can be released at once. In the past the government has released about 1 million barrels per day. At that rate, the promised influx of 50 million barrels of crude could last about two months.
___

WHY DID BIDEN TAP THE RESERVE?

The idea is that by putting more oil on the market, prices will fall. That hasn’t happened yet. But depending on what happens in the rest of the world, there’s still a chance it could work.
Oil prices rose slightly after the announcement. Traders were anticipating the news, and may have been underwhelmed by the details, said Claudio Galimberti, senior vice president for oil markets at Rystad Energy.
“The immediate price reaction is not the final judgment on the effectiveness of this effort,” said Jim Burkhard, vice president at IHS Markit. “It will really be in the months ahead.”
Whether the move is effective depends on several factors.
___

WHAT ABOUT OPEC?

The OPEC oil cartel and its allies will be meeting in about a week to decide whether to increase production or to hold back, a strategy the group often employs to boost prices. Earlier this month, Biden had hoped OPEC nations, led by Saudi Arabia, would agree to significantly boost production. But they only made modest increases.
If OPEC decides next week that it wants higher prices, its members could take oil off the market. “Just overnight, they could just offset it,” Burkhard said. “So that’s a big question mark, is how they react to this.”
The coalition Biden assembled — bringing together India, China, Japan, South Korea and the U.K. to tap their strategic oil reserves — is unprecedented, Galimberti said. Altogether, the group could be adding 70 million to 80 million barrels of oil onto the market, he estimates.
“It’s kind of a coalition of oil importers,” he added. “But can they really supplant, or can they really represent a rival to OPEC-plus? The answer is absolutely not.” That’s because the group of importers are using their strategic petroleum reserves, which are limited. On the other hand, OPEC and its allies have oil reserves that can last for decades. “So there is no comparison between the two,” Galimberti said.
___

WILL GASOLINE GET CHEAPER?

What many consumers want to know is what’s going to happen to gasoline prices at the pump. Many factors go into the price of gasoline. Refineries buy crude oil in advance, so they’re still working with more expensive oil, and states have differing tax rates that impact the price. Nevertheless, if OPEC doesn’t respond by curtailing production, the influx of oil could lead to a gasoline price decrease of 10 cents to 15 cents per gallon, said Kevin Book, managing director at Clearview Energy Partners. Even if the price drop doesn’t happen, Biden can make the case that he tried.
“Really, what we’re talking about are the most price-sensitive consumers in the economy,” Book said. “They may not show up in GDP numbers or recessions, but they show up in vote counts as marginal voters, who may or may not respond in the next election cycle, and I think if we get down to it that’s really what this is about.”
___

WHY DOES OIL MATTER?

The future of oil and gas in the U.S. is a political flashpoint and source of tension, especially as companies and government agencies grapple with climate change and the transition to cleaner sources of energy.
On the one hand, the U.S. oil and gas industry has been praised by some political leaders for creating energy independence. Where the U.S. once relied heavily on imports, other nations now rely on the U.S. for oil. It's also a job supplier: The oil and gas industry employs more than 10 million people in the U.S. and contributes about 8% of the nation’s gross domestic product, according to the American Petroleum Institute. Any impact resulting from Biden's release of oil from the strategic reserves “is likely to be short-lived unless it is paired with policy measures that encourage the production of American energy resources,” the API said in a statement.
Companies that supply oil benefit from higher prices. But consumers don’t like it when those higher prices trickle down to the pump.
“The broader drama is this new variable in the oil market: It’s the tension between aspirations to decarbonize and the practical concern to have low gasoline prices,” Burkhard said. “And there there’s a conflict between those two forces. And that’s why we’re going to continue to see dislocations between demand and supply.”


More from News 12
1:56
Police: Student, 17, charged with multiple felonies for bringing unloaded gun and bullets to school

Police: Student, 17, charged with multiple felonies for bringing unloaded gun and bullets to school

2:29
Mostly sunny with highs near 70 for Tuesday; chance for rain by midweek

Mostly sunny with highs near 70 for Tuesday; chance for rain by midweek

2:23
State budget makes no change to foundation school aid; governor signals changes coming in 2026

State budget makes no change to foundation school aid; governor signals changes coming in 2026

1:43
Police: Several people hurt in Garden City bus crash

Police: Several people hurt in Garden City bus crash

1:32
Nassau Community College professors call on state to step in to help school survive

Nassau Community College professors call on state to step in to help school survive

0:58
Police: Man spray-painted antisemitic messages at homes, Jewish center in East Meadow

Police: Man spray-painted antisemitic messages at homes, Jewish center in East Meadow

1:56
State officials: More chemical drums could be buried beneath Bethpage baseball field

State officials: More chemical drums could be buried beneath Bethpage baseball field

1:33
Groundbreaking ceremony marks beginning of Jake's 58 Casino's $210M expansion project

Groundbreaking ceremony marks beginning of Jake's 58 Casino's $210M expansion project

1:32
Nassau residents deliver petition with more than 1,600 signatures against proposal to deputize residents

Nassau residents deliver petition with more than 1,600 signatures against proposal to deputize residents

Police: Driver arrested for fatal Brentwood hit-and-run

Police: Driver arrested for fatal Brentwood hit-and-run

0:26
Police: Central Islip business cited for violation after State Liquor Authority investigation

Police: Central Islip business cited for violation after State Liquor Authority investigation

1:39
Paws & Pals: Dogs up for adoption at Almost Home Animal Rescue

Paws & Pals: Dogs up for adoption at Almost Home Animal Rescue

4:39
Guide: Ways to help you identify and deal with work burnout

Guide: Ways to help you identify and deal with work burnout

1:49
Officials: Fire dispatcher's wife alerts him about blaze at their Centereach home

Officials: Fire dispatcher's wife alerts him about blaze at their Centereach home

0:32
State police: Trooper conducting traffic stop rear-ended on Meadowbrook State Parkway

State police: Trooper conducting traffic stop rear-ended on Meadowbrook State Parkway

0:52
Paws of War service dogs attend candlelight remembrance vigil in Farmingdale

Paws of War service dogs attend candlelight remembrance vigil in Farmingdale

2:04
CDC: Most women do not get a mammogram because of financial difficulties

CDC: Most women do not get a mammogram because of financial difficulties

0:38
'Pearls of Wisdom' tea event in Riverhead aims to empower young Black women

'Pearls of Wisdom' tea event in Riverhead aims to empower young Black women

0:52
Splish Splash hosts 8th annual Polar Plunge fundraiser for Special Olympics athletes

Splish Splash hosts 8th annual Polar Plunge fundraiser for Special Olympics athletes

0:24
Police: Car crashes onto guardrail, overturns on LIE in Brentwood; driver injured

Police: Car crashes onto guardrail, overturns on LIE in Brentwood; driver injured