The US strategic petroleum reserve explained

United States President Joe Biden is again dipping into the nation’s petroleum stockpile to try to corral rising energy prices.

The White House announced Thursday that Biden ordered the daily release of one million barrels of oil from the strategic petroleum reserve for the next six months. Biden will also ask Congress to penalise oil and gas companies that lease public land but are not producing energy.

The Administration hopes that tapping the petroleum reserve will buy time and tamp down gasolene prices long enough until domestic producers can boost output.

Global oil prices were rising even before Russia invaded Ukraine in February. When Biden announced a ban on Russian oil imports in early March, he acknowledged that it would come at a cost to American consumers.

This is the third time Biden has turned to the strategic petroleum reserve in a little over four months. Back in November, he ordered the release of 50 million barrels of oil. Then, in his state of the union speech in March, Biden announced another 30 million barrels as part of a multination effort to boost the oil supply.

Tapping the reserve is among the few things a president can do alone to try to control inflation, which makes Americans poorer and often creates a political liability for the party in control of the White House.

Here is a look at what is involved:

America’s strategic petroleum reserve is a collection of underground salt caverns in Texas and Louisiana that can hold more than 700 million barrels of oil although it is not currently full. The reserve held about 568 million barrels last week, down from more than 650 million barrels in mid-2021, according to the US Energy Department.

EMERGENCY

The reserve was created after the 1970s Arab oil embargo to give the United States a supply that could be used in an emergency.

The US now exports more oil than it imports, but the reserve remains and has been tapped for various reasons, from offsetting the impact of hurricanes and ship-channel closings to raising money for deficit reduction.

In 1991, President George H.W. Bush authorised withdrawing nearly 34 million barrels during the Gulf War, although only 17 million barrels were used. In 2011, President Barack Obama approved the release of 30 million barrels to offset the disruption of supply from Libya.

To remove oil from the reserves, water is pumped into the salt caverns, making the crude float to the surface, where it is captured and sent through pipelines to refineries.

President Biden is hoping that by releasing more oil on the market, prices will fall. Prices did dip for nearly two weeks after Biden’s initial announcement about tapping the reserve back in November but then resumed their steep climb. US crude is up almost 40 per cent this year and has grown even more volatile in the past month.

Whether Biden’s latest move works will depend on several factors. One factor to keep in mind: Even though 1 million barrels a day is a huge amount of oil, the US consumed nearly 20 million barrels a day last year, and worldwide consumption topped 97 million barrels a day.

AP