US President Joe Biden announced on Thursday his intention to extract 180 million barrels of oil from US strategic reserves. A decision of unprecedented magnitude that meant lowering oil prices, which had been rising sharply since the start of the war in Ukraine. But the effectiveness of this weapon is relative.
Joe Biden has brought out heavy artillery to counter rising oil and gas prices. The American president decided, on Thursday, March 31, to massively draw in the US Strategic Petroleum Reserves.in order to put one million barrels a day on the markets for six months.
In all, the United States will release 180 million barrels of oil that have so far been sitting idle in the many salt mines in Texas and Louisiana, used to store emergency reserves of black gold. Unprecedented since the formation of these strategic reserves in the 1970s.
It is a lot of oil and little at the same time
“This is a time of danger for the world and painful prices for American families. […]. If we want to lower gasoline prices, we must increase available oil supplies,” Joe Biden said to justify his unprecedented use of strategic reserves.
The war in Ukraine has accelerated the rise in oil prices that has been taking place for several months. Russia’s banishment from the international scene has raised fears that this country – world’s second largest crude oil exporter behind Saudi Arabia in 2021 – no longer supplies the international market with its crude oil. The US ban on importing Russian hydrocarbons has only accentuated this upward trend.
This is not the first time that Joe Biden has drawn the weapon of strategic reserves in an attempt to contain the rise in oil prices. He had done it before. war in ukraine in novemberand other times in early March.
Washington had thus put 80 million barrels of crude oil on the market… With no perceptible effect on oil prices. But this time, the White House occupant hopes the scale of his energy effort will be enough to calm markets. The latter was receptive as the price of Brent fell 5% just after Joe Biden’s announcement.
However, be careful not to rely too much on very short-term price movements, “because the effect of speculation also comes into play,” recalls Olivier Appert, advisor to the energy and climate center at the French Institute of International Relations. (Ifri), contacted by France 24. This expert is more circumspect about Joe Biden’s ability to stop the upward trend in oil prices thanks to the weapon of strategic reserves. It is true that “these are very large quantities that will be put on the market, but they remain modest, since they represent only 1% of the world’s daily oil consumption and barely 10% of the daily production of Russia,” he said.
A weapon to deal with emergencies
Therefore, it is rather a great drop in an ocean of needs. The million barrels per day of US crude will be far from enough if the pessimistic forecasts of the International Energy Agency (IEA) are met. This organization predicts, in fact, that the amount of black gold supplied by Russia to the world could fall by 3 million barrels per day, due to international sanctions, highlights the Financial Times.
If the use of strategic reserves may not be as effective as Joe Biden might hope, it may also be because these stocks were not designed for this type of use. explains the Wall Street Journal. “They are reserves to mobilize in case of emergency, natural disasters or unforeseen specific events,” continues the American newspaper.
In the past, Washington drew on these reserves mainly at the time of the first Gulf War (1991), during the passage of Hurricane Katrina (2005), and at the height of the Arab Spring (in 2011).
The Biden administration wants to believe that the Russian invasion of Ukraine is one of those one-time events that drive up oil prices. But that is only part of the story. “Certainly there is a cyclical shock with this war, but the increase in oil prices started earlier and corresponds to a structural change in the market,” says Olivier Appert.
It dates from 2014. “Investment in oil has been halved since that date, first because in 2014 prices plummeted after a disagreement between the countries of the Organization of Petroleum Exporting Countries (OPEC) + [les pays de l’Opep et la Russie] which has led the large groups to reduce their investments and then because there is pressure to depend less on fossil fuels”, explains this expert. translates into price increases.
Arm wrestling with OPEC
The problem with strategic reserves is that “they are used once and then they have to be replenished,” recalls Olivier Appert. In other words: As soon as the United States buys oil again to replenish its emergency reserves, and Joe Biden has already announced that he will, the wild ride for prices can start all over again.
The US president is also aware of the limits of his energy weapon. “It is an emergency bridge that we are installing while we wait for oil production capacities to increase,” Joe Biden said.
But who will? OPEC would have the means. “[Washington] took steps to ask the members of this organization to produce more oil, but the United States received a final inadmissibility”, recalls Olivier Appert. The same day that Joe Biden announced his intention to draw on strategic reserves, the countries of OPEC made it known that they had agreed to a minimum increase in the production of black gold.
This recourse to strategic reserves is also a way for Joe Biden to take on the OPEC countries. The US president “recognizes that Saudi Arabia and the United Arab Emirates – two traditional allies of Washington and influential members of OPEC – do not want to help it fight rising prices,” underlines the Financial Times. Therefore, he decided to act unilaterally.
In the absence of OPEC support, Joe Biden also called on US shale oil producers to produce more. “There are too many companies [aux États-Unis] that they do not manufacture enough, and prefer to take advantage of the benefits of high gasoline prices without investing in production”, he lamented. The White House even threatened producers not to do more economic sanctions… But “so far, it has been met with a refusal,” notes the Wall Street Journal.
For Joe Biden, this massive recourse to strategic reserves is a very risky bet. Once the 180 million barrels of crude have been placed on the market, there will only be about 350 million barrels of oil left in these emergency reserves… This is very little, because the member countries of the IEA are obliged to always have at least less the equivalent of ninety days of oil consumption in reserves, which corresponds to 315 million barrels for the United States. “There will be almost nothing left to deal with another emergency,” notes the Washington Post.
But the American president has few options. If OPEC doesn’t help him, if domestic oil producers seem to be turning a deaf ear, Joe Biden must act to try to lower prices before next November… And the midterm elections.