Biden says he’ll release 10 million more barrels from the dwindling ‘oil piggy bank’ after OPEC’s production cuts — but this is the big risk with more withdrawals

Biden says he'll release another 10 million barrels from dwindling

Biden says he’ll release another 10 million barrels from dwindling “oil piggy bank” after OPEC’s production cuts — but that’s the big risk of further redemptions

To counter rising prices at the pump, President Biden plans to raid the country’s “oil piggy bank.”

In November, the Department of Energy will deliver 10 million barrels from the Strategic Petroleum Reserve (SPR) to the market. The SPR – the world’s largest emergency crude oil supply – was established back in 1975 in the event of a severe oil supply crisis or economic disruption.

Biden’s decision comes after the Organization of the Petroleum Exporting Countries (OPEC+) announced it would cut oil production by 2 million barrels a day – putting additional pressure on global energy supplies.

But with the country’s emergency reserve already at its lowest level since 1984, some experts have concerns about the long-term impact.

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Gas prices hit a record high of $5.02 a gallon in June following Russia’s invasion of Ukraine, but this summer saw a 99-day streak of lower prices amid recession fears and falling oil prices.

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But even before OPEC+ announced that it would cut oil production, gas prices slowly began to rise again at the end of September. This could be due to a combination of rising demand, refining problems and the upcoming European ban on Russian oil.

With the recent decision by OPEC+, prices are expected to escalate even further. The group says the production cuts are being made because of “the uncertainty surrounding the global economic and oil market outlook.”

On Oct. 7, the average national gas price was $3.89 a gallon, according to the AAA, which is about 10 cents higher than the week before.

Biden disappointed by ‘short-sighted’ production cut

Hours after the OPEC+ announcement, the White House said the president was disappointed by “OPEC+’s short-sighted decision to cut production quotas” as the global economy was still grappling with the fallout from Russia’s invasion of Ukraine.

The press release said 10 million barrels of oil would be drained from the SPR and the Energy Secretary would be exploring other options to increase domestic production.

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Biden also urged gas companies to cut gas prices further.

Why large withdrawals from the reserve could be risky

Since March, the Department of Energy has released 160 million barrels of crude oil, or more than a quarter of inventories — bringing the SPR to its lowest level in four decades.

As of Sept. 30, the reserve has fallen to 416 million barrels, according to the ministry.

The Independent Petroleum Association of America (IPAA) said back in November 2021 that it was firmly opposed to tapping oil supplies to counteract gas prices. The group’s concern was that depletion of the emergency reserve could jeopardize the US if global or domestic oil supplies hit dangerously low levels before supplies can be restored.

The IPAA instead recommends increasing domestic natural gas and oil production, though oil producers are already grappling with supply chain issues, limited capital and investor pressure to boost yields.

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Francisco Blanch, Managing Director and Head of Global Commodities at Bank of America Global Research, was also critical in a report on Bloomberg Television.

“I don’t think that’s a good idea given the incredibly tight geopolitical world we live in today,” Blanch said. By depleting the reserve, the US could “put itself more into the hands of OPEC+… after all, you’re just giving away more and more market control.”

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This article is informational only and should not be construed as advice. It is provided without any guarantee.

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