US releases “emergency” oil

President Joe Biden announced on Tuesday that the US, along with a handful of other countries, would release 50 million barrels of crude oil in an attempt to halt rising inflation and lower petrol prices. 

The 50 million barrels would come out of the US Strategic Petroleum Reserve, a stockpile of oil intended for use in emergencies such as natural disasters and war. It is the largest stockpile of crude oil, totalling 620 million barrels.

US Energy Secretary Jennifer Granholm said the move was necessary because “oil supply has not kept up with demand” causing “working families and businesses to pay the price.” The American Automobile Association has stated that US petrol prices have more than doubled from a year ago, averaging about $3.40 a gallon.

Earlier this month, the Biden administration said that the Organisation of Petroleum Exporting Countries (OPEC), a cartel of 13 countries whose objective is co-ordinating petrol prices, were in danger of jeopardizing the global economy by low oil production. 

Saudi Arabia, on the other hand, argued they were acting responsibly by gently increasing production by 400,000 barrels a day each month.

The US plan is to release 32 million barrels in the next several months. The other 18 million barrels will be part of a sale that Congress has already authorised. As part of the united front, the UK will also release 1.5 million whilst India will release 5m. It also comes in unison with major energy-consuming nations like China, Japan and South Korea, although they have not revealed their level of oil barrels released. However, the announcement appears not to have had the desired effect with the price of Brent rebounding by more than 2% to trade around $81.40 a barrel. This could be put down to the market expecting a larger release. Richard Bronze, head of geopolitics at Energy Aspects argued traders had been anticipating a release of up to 100 million barrels. 

This is the largest tapping into the Strategic Reserve since 2011 when the civil war in Libya caused crude prices to rise. The reserve was established in 1975 in reaction to 1973-74 the oil embargo and is kept in underground tanks in Texas and Louisiana to mitigate against any price fluctuations. Not everybody in America supports the move 

though, former President Donald Trump objecting to the motivations behind the decision saying the reserves should only be used “for serious emergencies, like war, and nothing else.”

With midterm elections next year and the country returning to pre-pandemic levels of demand for oil, which had plummeted causing a corresponding drop in production. In the US, for example, the oil rig count for the country had fallen 70%. Biden has faced mounting 

pressure from both sides to tame inflation. The Republicans have been quick to criticise the administration for inflation hitting a 31-year high with Senate Republican Leader Mitch McConnell highlighting how inflation in “housing, transportation and food” is hitting essential goods, damaging consumers from the “middle class on down.”

It is too soon to say whether the move will have the desired effect on inflation, but in the meantime, traders will focus their attention on the upcoming OPEC meeting on December 2 to see how the cartel respond.

Analyst: Edward Raftery

Sector Head: Edward Raftery

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