President Biden is tapping into the National Oil Reserves in hopes of reducing gas prices at the pump and holding off the highest inflation in 40 years – that was then created by the oil embargo of 1973-1974 and reached as high as 13.55% in 1980.
The Strategic Petroleum Reserve (SPR) is the largest known emergency oil reserve in the world. Stored in Texas and Louisiana it is officially capable of storing 714,000,000 barrels of oil, but it surpassed that amount at its peak in December 2009 with 726,626,000 barrels of stored petroleum.
Congress has been selling the reserve in the open market to fund the federal deficit. Between 2015-2017 congress sold 19.1% of the SPR. That’s 132,000,000 barrels of the 690,959,000 in storage at the end of 2014. At the end of January 2020, the SPR sat at 588,317,000 barrels, at only 80.9% of its peak just 12 years ago.
The Biden administration is proposing to release 1,000,000 barrels a day through October. That’s a whopping 36.4% of the current SPR, which by the end of October would leave the reserves at 374,000,000 barrels – 51.5% of it’s prior maximum – a level not seen since November 1983, just 6 years after it first started storing oil in 1977 (the SPR was created in 1975).
The U.S.A. consumes about 20.5 million barrels a day and imports about 9.14 million barrels of its consumption. While releasing 1 million barrels a day – 10.9% of the imported oil – and it does cover the 8% of imported oil produced by Russia, it may not have the desired effect on inflation.
Analysts don’t expect a relief at the gas pump until late April or mid-May, with lumpy consumption between Memorial Day and Labor Day. Some state governments like Maryland, Connecticut, and Georgia are suspending taxes on gasoline in order to stave off inflation and pressure on their citizens. Patrick De Haan, of Gas Buddy, thinks shielding Americans from gas prices could induce more gas use and higher prices.
President Biden blames the jump in gas prices on the Russian invasion of Ukraine. According to AAA, gas prices have increased well before the Russian/Ukranian prices. Since the invasion of Ukraine, U.S. gas prices have climbed from $4.029 to $4.594 a gallon. However, in the prior 11 months the price of a gallon climbed from $3.204 to $4.029. The price pressure on crude oil and gasoline lies elsewhere; most likely in the overheated economy created by an influx of capital by the Federal Reserve and extremely low interest rates.
Cooling the overheated economy, with a 7% inflation rate in 2021, will likely have a bigger impact on controlling gas prices that have been increasing for over a year.
Questions
Will an influx of oil really dampen gas prices created by traditional supply and demand forces of open markets?
Is the U.S. really facing an oil shortage sufficient to warrant depleting the national reserves?
Is depleting the SPR to 51.5% of capacity worth it? Is it politically motivated or emergency motivated?
Sources
2 comments:
I believe an influx of oil will dampen gas prices but not very effectively considering other factors. The overheated economy is going to face a slowdown or some sort of economic recession because of the inflation and how our recovery from the pandemic has been really quick and sudden. This may decrease demand for gas prices as income of people decrease and just the overall circular flow of money decreases. Gas prices may also still decrease considering the idea of the supply curve shifting right which means the price should decrease. Patrick De Haan does bring up a good point in that demand might go higher if Americans are shielded from gas prices which would make it so that gas prices don’t dampen too much. Additionally, if the overheated economy does last, the influx of capital and low interest rates brings up demand.
I think it is definitely sufficient considering how we get 8% of our oil from Russia and the fact that the Middle East could be affected by the war. Even 8% is a sudden decrease of supply that could lead to a significant increase in prices. Plus we have a good amount of oil in our national reserves and even when using it with the current plan, we will still have 374 million barrels to spare. I think it's worth considering how many people in the US use oil daily for their cars and more. Our whole economy is heavily reliant on oil and the last thing we want is something bad to happen economically right after coming out of the pandemic. This is definitely emergency motivated considering the situation around gas prices but also a little politically motivated in that Biden wants to avoid economic turmoil/collapse coming up to his midterm election.
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