Market

Oil prices/Biden: Americans should have reservations on reserve release

In gas-guzzling America, steep charges at the pump are a political liability. The highest US gasoline prices since 2014 have sunk the approval rating for President Joe Biden to an all-time low and cast a shadow over the country’s economic recovery.

Desperate times call for a drastic yank on the oil valves. The White House on Tuesday announced releases from the country’s emergency stockpile in an attempt to combat spiralling energy prices. About 50m barrels of oil will flow from the Strategic Petroleum Reserve in coming months. Other big consumers, including China, India and the UK, will contribute too.

The move gives Biden much-needed action credentials. But it will do little to help drivers in the near term.

Americans consume roughly 50m barrels of oil in 2.5 days, so the reserve release is no more than a drop in the gas tank. It is equivalent to increasing supply by 137,000 bpd for a year. Opec+ countries produce more than 40m barrels per day.

The US-led effort may backfire. Opec+, which has previously agreed to release an additional 400,000 barrels a day starting in December, may reconsider the move in retaliation. The strategic reserves that will be released will also need to be replenished at some point. As if on cue, oil prices rose on the news on Tuesday.

Biden is setting a bad precedent. The SPR is meant to be an emergency tool for covering temporary supply disruption from natural disasters or big major oilfield accidents. It is not supposed to be tapped simply because business has underinvested in energy and the economy is strong.

The US has only tapped SPR reserves on three previous occasions. Two related to wars. The third came in response to Hurricane Katrina. The only emergency Biden faces is a political one.

WTI prices peaked in late October at $85.41 a barrel. The price is currently some $78. Pandemic-era levels hovering around $40 will not recur, however convenient it would be for the president. Pricey oil is part of the inflationary conundrum he and ordinary Americans must simply learn to live with.

The Lex team is interested in hearing more from readers. Please tell us what you think of oil prices in the comments section below.

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