The US and Other Nations Tap Their Strategic Oil Reserves

US to Release 50 Million Barrels of Oil

With oil prices soaring to a seven-year high, President Biden announced plans to draw from the country’s Strategic Petroleum Reserve. The US is joining the UK, India, China, Japan, and South Korea in tapping their oil reserves to increase supply and reduce oil prices. This is the first international joint action of its kind.

The US plans to release 50 million barrels from the reserve. As of yesterday, gas in the US cost $3.409 per gallon on average. For a comparison, in 2020 the average price of gas was $2.11 per gallon.

Crude Prices Move Higher on the News

Despite the announcement yesterday, crude prices for future delivery increased. Gas and heating oil prices dipped for several weeks as investors and traders braced for what the Biden administration would do. Now that there is less uncertainty, crude futures are climbing again.

Even if there is a decline in oil prices in the near-term, analysts expect it to be short-lived. Demand for oil is projected to grow in 2022 as the economy continues to recover from the pandemic.

Oil From Reserves Will Not Be Enough to Meet Demand

The six nations plan to increase global supply by 65 million to 70 million barrels. That amount is not enough to meet consumption, which is expected to be more than 100 million barrels per day for the fourth quarter of this year, up 5% compared to a year ago.

The countries releasing oil know this. The decision to distribute oil from reserves is designed more to send a message to OPEC, which has balked at increasing supply.

Tapping the US reserves has become more common, but the move by the six countries is the most significant action taken since 2011. Back then the US and 27 countries released 60 million barrels to address a lack of supply as civil war broke out in Libya. Whether the release will cause OPEC to change its mind and increase supply remains to be seen.

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