The U.S. is uncorking an unprecedented amount of oil from its reserves—but will it be enough to take the sting off higher gas prices?
- The federal government is trying to drive down the price of gasoline by releasing a portion of the oil it has set aside in reserves.
- By adding more supply, the government hopes to make up for shortfalls coming after banning Russian oil in response to Russia's invasion of Ukraine.
- The price of oil has fallen significantly in recent days but gas prices have yet to see much movement.
- Some experts said the release may help, but much still depends on the trajectory of the war.
The Department of Energy will release an average of 1 million barrels each day from the Strategic Petroleum Reserve (SPR) for the next six months in the longest such tapping of oil reserves in history, the White House said Thursday. The goal is to get the price of gas, derived from crude oil, down from the near-record levels it’s been hovering at for weeks because of the Russian invasion of Ukraine.
Will it work? Some experts say it may help some, at least for a little while, though it typically takes time for gas prices to react to lower oil prices. The price of oil has fallen about $15 a barrel, or 13%, in the last week, but there’s been little change in a gallon of gas over the same period.
“This should temper prices for gasoline in most places that are east of the Rockies,” Tom Kloza, global head of energy analysis at price tracker Oil Price Information Service, said in an email.
Concerns that sanctions against Russia, the world’s third-largest oil producer, would create supply shortages pushed the U.S. average for a gallon of regular unleaded up almost 80 cents after Russia invaded Ukraine in late February. But oil has since dropped to under $100 a barrel, and the price of gas is down only about 11 cents from its record high of $4.33 on March 11, and had moved very little in recent days.
Drawing down oil from the SPR is a typical response to an energy crisis, but in the past it’s only been done on a smaller scale. A release for 180 days will likely reduce the price of oil, though the market is so volatile that other news threatening oil supply could easily change the trajectory, AAA said in a blog post Thursday.
The idea is that selling oil from the reserve—a massive stockpile of petroleum stored in salt caverns on the Texas and Louisiana Gulf coasts—will make oil and hence, gasoline, cheaper by increasing the supply of it on the market. The SPR held 568.3 million barrels of oil as of March 25, according to the Energy Information Administration.
President Joe Biden hasn’t had much success with previous smaller releases of oil from the reserves—50 million barrels announced in November and another 30 million in early March—perhaps because the U.S. used almost 20 million barrels a day in 2021.
"This is the third time now in six months that President Biden has resorted to the SPR, and in the past few cases, we didn't see anything resembling a durable change in gasoline price,” said Katie Tubb, senior policy analyst at The Heritage Foundation, a conservative think tank. “And I think that is because, A, it doesn't amount to very much and, B, it doesn't get to what I think are a lot of the root problems that are exacerbating the crisis right now.”
The U.S. should develop more long-term oil production capacity, though Biden has “no intention” of doing that, Tubb said. Biden, however, did call on Congress Thursday to encourage more domestic oil production in the long run.
The usefulness of the release may depend on the war.
“Any coordinated tapping of strategic reserves will only be effective if peace talks in the war in Ukraine are headed in the right direction,” Edward Moya, a senior market analyst at OANDA, said in a commentary. “If it becomes clear that a major de-escalation in the war is not going to happen, then oil could surge back to the recent highs.”
However, the move will help “keep a lid” on prices until production increases, Edward Gardner, a commodities economist at Capital Economics, wrote in a commentary.
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