US weighs largest ever drawdown of emergency oil reserves

An American postal worker puts on his seat belt after saving his car at a gas station in Garden Grove, California, US, March 29, 2022. REUTERS/Mike Blake

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  • Consider releasing up to 180 million barrels of oil over several months
  • International Energy Agency calls for emergency meeting on Friday – Australia and New Zealand
  • Oil prices drop by more than $5 a barrel

Four US sources said, on Wednesday, that the Biden administration is considering releasing up to 180 million barrels of oil over several months from the Strategic Petroleum Reserve, at a time when the White House is trying to reduce fuel prices.

A spokesman for New Zealand’s energy minister said in an email on Thursday that the member countries of the International Energy Agency (IEA) will meet on Friday at 1200 GMT to decide on a mass release of oil.

“The extent of the potential mass release has yet to be determined,” a spokeswoman for the minister, Megan Woods, added. “This meeting will determine the total size, and the allocations for each country will follow,” she said. Read more

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It is unclear whether the withdrawal of the US Strategic Petroleum Reserve will be part of a broader coordinated global release.

The IEA did not respond to a request for comment outside of business hours. The White House said President Joe Biden will make statements Thursday about his administration’s actions.

The last amount of US oil under consideration, which is equivalent to about two days of global demand, will be the third time the US has tapped its strategic reserves in the past six months, and will be the largest release in nearly 50 years. – SPR year history. Read more

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Global oil prices fell more than $5 a barrel after the news.

Oil prices have surged since Russia invaded Ukraine in late February, and the United States and its allies responded by imposing heavy sanctions on Russia, the second-largest exporter of crude.

Brent crude, the global benchmark, jumped to around $139 earlier this month, its highest since 2008, but fell below $108 a barrel in Asian trading on Thursday.

Russia is one of the largest oil producers, contributing about 10% to the world market. But the International Energy Agency said sanctions and buyers’ reluctance to buy Russian oil could remove about 3 million barrels per day of Russian oil from the market starting in April.

Russia exports between 4 and 5 million barrels per day.

The news comes before the Organization of the Petroleum Exporting Countries (OPEC) and its allies, an oil producing group known as OPEC+ that includes Saudi Arabia and Russia, meet to discuss reducing supply restrictions. The United States, Britain and others have previously urged OPEC+ to raise production quickly.

However, OPEC+ is not expected to deviate from its plan to continue to gradually boost production when it meets on Thursday. Read more

US oil reserves currently hold 568.3 million barrels, the lowest level since May 2002, according to the US Department of Energy.

The United States is considered a net oil exporter by the International Energy Agency. But that situation could change to a net importer this year and then back to exporter again as production has been slow to recover from the COVID-19 pandemic.

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It was not immediately clear whether the 180 million barrel withdrawal would consist of exchanges from the reserve that must be replaced by oil companies at a later date, or full sales, or a combination of the two.

The White House has not commented on the plan to release the oil.

“The immediate need is to fill the gap in the real economy, and freeing up barrels from the SPR will alleviate this problem even though it effectively transfers the shortage from one pocket to another,” said Hou Lee, an economist at Singapore’s OCBC Bank.

Biden’s political responsibility

The White House said Biden will deliver remarks at 1:30 p.m. ET (1730 GMT) on “his administration’s actions to minimize the impact of Putin’s price hikes on energy prices and lower pump gas prices for American families.”

No additional details were given.

High gasoline prices are a political burden on Biden and his Democratic Party as they seek to retain control of Congress in the November elections.

Given that the United States is taking a “strong stance towards Moscow, promising further sanctions if Russia continues to wage war in Ukraine, we believe the issuance of the SPR is used as a tool to mitigate the impact of these foreign policy decisions on American consumers,” RBC Capital said in a note to clients.

US Energy Secretary Jennifer Granholm said last week that the US and its allies at the International Energy Agency were discussing an additional coordinated release of storage. Read more

IEA member states agreed earlier in March to release more than 60 million barrels of oil reserves, of which 30 million barrels are from US oil reserves.

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Three sources familiar with the matter told Reuters that the Biden administration is also considering temporarily lifting restrictions on summer sales of high-ethanol blend gasoline as a way to lower fuel costs for US consumers. Read more

Adding more ethanol to the gasoline blend could lower prices at US gas pumps because ethanol, which is made from corn, is currently cheaper than straight gasoline.

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(Additional reporting by Eric Beach, Garrett Renshaw, Steve Holland and Timothy Gardner in Washington, Sonali Paul in Melbourne, Lucy Kramer in Wellington and Florence Tan in Singapore; Editing by Grant McCall and Himani Sarkar

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