The U.S. will release oil from reserves in synchronization with other nations to curb gas prices

Overview:

  • The U.S. will release 50 MM barrels of crude from the Strategic Petroleum Reserve (SPR), says Biden, White House
  • The move is a synchronized effort between energy-consuming countries including Japan and China to control the speedy rise in energy prices
  • Before Tuesday’s announcement, the Biden Administration repeatedly highlighted their effort for tools at its disposal, since prices at the pump soar around a 7-year high

A global effort by the U.S. to cool down price hike

President Joe Biden announced on Tuesday that the administration will use the Strategic Petroleum Reserve as part of a global effort by energy-consuming countries to contain the steep spike in fuel costs that is expected in 2021.

The synchronized release by the U.S., India, China, the Republic of Korea, Japan, and the U.K. is extraordinary.

The US will release 50 million barrels from the SPR in total. An exchange will take place over the following few months for 32 million barrels, while an acceleration of a previously permitted sale will take place for 18 million barrels.

“The President is prepared to take greater action if necessary, and is willing to employ all of his powers in concert with the rest of the world.” “As we exit the pandemic, this will strive to preserve enough supply,” the White House said in a statement.

The announcement on Tuesday confirms what the administration has been saying for months. As West Texas Intermediate crude futures soared to a seven-year high above $85, it said it was looking into the tools at its disposal.

How can the U.S. tap Strategic Petroleum Reserve?

The SPR, which was established in 1975 after the Arab Oil Embargo, has a total capacity of 727 million barrels. According to the DofE, the SPR can be accessed in three ways:

  • A complete drawdown to respond to a “severe energy disruption,
  • A restricted drawdown of up to 30 MM barrels, or
  • A drawdown for a test sale or substitute

Following the announcement, US oil fell 1.9 percent to a session low of $75.30 per barrel, before recovering and heading back into positive territory. The contract was last trading at $77.99 per barrel, up 1.6 percent. Brent crude, the international standard, was trading at $81.44 per barrel, up 2.2 percent.

A release was “fully telegraphed” and so already priced into the market, according to Rebecca Babin, managing director at CIBC Atlantic Trust Private Wealth Management.

“Over the last couple of weeks, positioning throughout the crude complex has been dramatically reduced as traders lock in profits ahead of year end, limiting the initial reaction,” she noted. Crude prices have fallen since October, when US oil and Brent reached their highest levels in 7 and 3 years, respectively.

“Today marks the official birth of an ‘anti-OPEC+,’ a coalition of big oil-consuming countries taking control of supply-side dynamics. “This is in terms of the unconventional and unprecedented release of strategic petroleum reserves to generate artificial looseness in the oil market and give a damaging shock to oil prices,” said Rystad Energy’s Louise Dickson.

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