President Joe Biden released 50 million barrels of oil from the country’s strategic petroleum reserve in a bid to fight the rising costs that are eating away at household budgets for everything from energy to groceries.
But if drivers hope the oil barrel release equals immediate price relief at a time when the national average for a gallon of gas is $3.40 — and even higher in certain states — some experts say they better keep on hoping.
“It makes a little bit of difference for drivers perhaps as we go into 2022 as the oil actually comes to market,” said Andrew Lipow, president of Lipow Oil Associates, a Houston, Texas-based energy industry consulting firm. Refineries already bought their oil supplies for December, he noted.
What about potential price savings in 2022? “It might amount to a few cents for a gallon that drivers see at the pump,” Lipow estimated.
The White House announcement “may have some sort of short-term impact,” said Seth Blumsack, a Pennsylvania State University professor specializing in energy economics. His hunch is the impact could translate to a 3 to 5 cent shave on pump prices around a month from now at the earliest.
“I don’t think that this 50 million barrel release is the cure to $4, $5 dollar gas prices. It’s not enough and what you would need is a more sustained supply increase over a longer period of time,” said Blumsack, who is also the director of the university’s Center for Energy Law and Policy.
Biden on Tuesday afternoon said the release is “a major effort to moderate the price of oil, an effort that will span the globe in its reach and ultimately reach your corner gas station, God willing.”
“It will take time, but before long, you should see the price of gas drop where you fill up your tank,” Biden later added. He spoke while oil futures
were trading up on Tuesday.
Countries including China, India, Japan and the United Kingdom are also releasing supply, the White House said. But Blumsack said other nations — including those within the Organization of the Petroleum Exporting Countries — may take a different approach.
As of Tuesday, the national average price for a gallon of gas was $3.40, according to AAA. That’s more than a $1 increase from a year ago, its statistics show. Californians currently pay the most, shelling out an average $4.70, and Oklahoma residents have the lowest average costs, with a $2.97 per gallon price.
The 50 million barrels come from the country’s Strategic Petroleum Reserve, with 32 million barrels up for exchange and 18 million up for sale. There were 606 million barrels of crude oil in the cache as of earlier this month.
The exchange for the 32 million barrels essentially is a loan with interest, Lipow explained. Bidders can get the oil now, but Lipow said they’ll have to pay it back later, in the form of returning the same amount of oil, plus an extra amount.
“This part of the release does not get more oil out of the ground, it just moves supply into the near term,” he said.
The 18 million barrel sale speeds up sales that were already authorized in 2018 deficit reduction legislation, Lipow said. The market already was planning for this oil to come up for sale, Lipow said. Speeding up the timetable, however, might not make a dent when refineries have already made their December plans.
“If your refrigerator is full of milk, you don’t need to buy more milk on Dec. 1,” he said. “Just because it’s there doesn’t mean the buyers are interested because the buyers have already made their plans.”
The oil release comes as the pace of inflation hit a 31-year high in October, according to recent Bureau of Labor Statistics data. The percentage change on gas prices popped 49.6% in October compared to a year ago, the agency said.
Americans are acutely aware of rising prices going into the holiday season and one recent polls says prices are the main way people now gauge the economy’s well-being.
Last week, Biden asked the Federal Trade Commission to investigate whether gas and oil companies are wrongly heaping price increases on drivers.
Companies certainly have the wiggle room, Patrick De Haan, head of petroleum analysis for GasBuddy, said on Twitter
The release could offer “temporary relief” but the long term consequences are unclear, he said. On the other hand, he added:
Biden on Tuesday noted the imbalance between dropping wholesale prices and pump prices, which have not “budged a penny. In other words, gas supply companies are paying less and making a lot more, and they do not seem to be passing it on to the consumers at the pump.”
The 50 million oil barrel release isn’t a gamechanger, both Lipow and Blumsack said. But it’s more than an empty political gesture, they said.
The release may be an appeal to domestic drivers, but Blumsack said it’s also a message to oil producing countries across the globe that “the administration is willing to take action, even if it’s unconventional, in the face of rising consumer energy prices.”
“The consumer is seeing prices rise on everything and they want the government to do something,” Lipow said. “The government has done something. Whether it works or not, we’ll see.”