America’s emergency oil stockpile is at its lowest level in 38 years, but it still has firepower

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CNN Business

Presidents have no magic wand to eliminate inflation. But they have a powerful tool that can help ease the pain of high gas prices: the Strategic Petroleum Reserve.

President Joe Biden, more than any of his predecessors, has leaned aggressively on this emergency oil stockpile to lower high pump prices that voters hate.

An SPR is a series of underground storage caverns that hold large quantities of crude oil that can be released during wars, hurricanes, or other glass-breaking moments. And Biden has not been shy about doing so, especially after Russia invaded Ukraine in February.

Since Biden took office in January 2021, the amount of oil in the SPR has fallen by about a third – 36% to be exact. That left the emergency oil stockpile at its lowest point since June 1984 — and the U.S. economy. and energy demand was significantly less than today.

And Biden isn’t done yet. The president plans to announce another 15 million barrels of sales from the SPR on Wednesday, a senior administration official said Tuesday evening.

Biden has told his advisers he is willing to allow future releases to balance the oil market if necessary.

Importantly, this latest sale, which will be announced on Wednesday, is not entirely new. This is part of a previously announced plan to release 180 million barrels of oil over six months. This extraordinary release, which detailed the record in late March, was slightly behind schedule. It now appears that the administration will reach its 180 million target, which will take longer than expected.

The SPR headlines are shaking up the energy market, which is already on the edge of a potential recession. U.S. oil prices fell 3% to $82.82 on Tuesday, returning to levels last seen before rumors of a controversial OPEC+ production cut. Analysts blamed the sell-off on the SPR news.

That drop in oil prices alone should help keep a lid on gasoline prices, which analysts say are already on the way down without further action from Biden.

While it’s difficult to determine exactly how much the SPR release affected prices, oil industry veterans tell CNN that Biden’s strategy has been effective, helping to cushion the blow not only from the war in Ukraine but also from weak supply from OPEC+. and US oil producers.

“Salute to them. They have done a great job of achieving their goal of lowering energy prices,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets.

Gas prices aren’t cheap — a gallon of regular oil sold for a national average of $3.87 on Tuesday — but they’re well below the record high of $5.02 set in June.

“It’s been effective so far,” said Tom Close, global head of energy analysis at the Oil Price Information Service, noting that oil prices have not reached the all-time highs set in 2008. SPR for this. “The management is laser-focused on gasoline.”

Kloza said he thinks there’s a better than 50/50 chance that gas prices will fall to their recent low of $3.67 a gallon. But more than giving credit US policy, cited Clause market forces, recession fears and the reopening of refineries sidelined by repairs.

“I don’t think they need to do anything until 2023. The market is doing most of the work for the White House,” Klose said. “I think gas is going to go down.”

It has not gone unnoticed by oil market watchers that this latest announcement of SPR sales comes just weeks before voters head to the polls ahead of critical midterm elections.

“With the midterm elections and the OPEC cut just weeks away, the Biden administration is trying to ensure that energy prices are not a major focus,” said Andy Lipow, president of consulting firm Lipow Oil Associates.

But Lipow noted frustration in the oil industry that despite complaints about high energy prices, the SPR releases “did nothing to encourage additional oil production.”

Not only that, but Biden’s aggressive emergency releases have reduced the SPR, potentially limiting the government’s ability to respond to future shocks.

The reserve is not a bottomless pit of oil. It’s more of a rainy day fund, and each release leaves less oil for the next crisis, whenever and wherever it happens.

That’s why the administration is planning in detail efforts to replenish the emergency reserve, setting an important signal for market participants given the scale of federal measures over the past six months.

Biden will announce that the administration intends to buy back crude oil for emergency stockpiles when prices are between $67 and $72 a barrel.

A senior official said this would be an “important signal to producers” by helping to “moderate and stabilize” prices not only when they are high but also when they are low.

The plan also serves to counter criticism of the unprecedented scale of Biden’s stockpiles, which officials say underscores the administration’s intent to fill when market conditions make it most profitable.

“We consider the SPR an incredibly important national security asset and want to make sure it serves its purpose well into the future,” the official said, noting it is still the world’s largest stockpile.

Despite recent emergency sales, the SPR still holds more than 400 million barrels of oil, a significant firepower that could be called upon in the coming months to respond to disruptions caused by the war in Ukraine.

“400 million barrels is a lot,” the official said.

Kloza, an OPIS analyst, said he was unconcerned about the declining SPR in part because decades ago the United States and Canada had the ability to dramatically increase production if needed (and stimulated by higher prices).

“Sometimes resources are archaic,” Kloza said. “I wouldn’t worry about it until it went down a bit.”

— CNN’s Alison Kosik contributed to this report

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