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
In an effort to counter rising prices at the pump, President Biden plans to plunder 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 supply of emergency crude oil — was established back in 1975 in case of a severe oil supply crisis or economic disruption.
Biden’s decision comes after the Organization of the Petroleum Exporting Countries (OPEC+) said it would slash oil production by 2 million barrels a day — putting extra pressure on the global energy supply.
However, with the country’s emergency reserve already at its lowest levels since 1984, some experts have concerns about the long-term implications.
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U.S. gas prices are going up again
Gas prices hit a record high of $5.02 a gallon in June after Russia’s invasion of Ukraine, but this summer saw a 99-day streak of lower prices due to recession fears and declining oil prices.
However, even before OPEC+ declared it would be cutting back on oil production, gas prices began inching back up again in late September. This may have been due to a combination of increasing demand, refinery issues and the upcoming European ban on Russian oil.
Now with OPEC+’s recent decision, prices are expected to escalate even further. The group says the production cuts are being made due to “the uncertainty that surrounds the global economic and oil market outlooks.”
As of Oct. 7, the average national gas price was $3.89 per gallon, which is about 10 cents higher than the week before, according to AAA.
Biden disappointed by ‘shortsighted’ production cut
Hours after the OPEC+ announcement, the White House said the president was disappointed by “the shortsighted decision by OPEC+ to cut production quotas” as the global economy is still contending with the effects of Russia’s invasion of Ukraine.
The press release noted that 10 million barrels of oil would be drained from the SPR and the Secretary of Energy would be exploring other options to increase domestic production.
Biden also urged gas companies to keep bringing gas prices down.
Why making big withdrawals from the reserve could be risky
Since March, the Energy Department has released 160 million barrels of crude oil, or over a quarter of the stockpile — draining the SPR to its lowest levels in four decades.
As of Sept. 30, the reserve has dropped to 416 million barrels, according to department data.
The Independent Petroleum Association of America (IPAA) stated back in Nov. 2021 that it strongly opposed tapping into oil stockpiles to counter gas prices. The group’s concern was that depleting the emergency reserve could put the U.S. at risk if the global or domestic oil supply reaches dangerously low levels before the supply can be brought back up.
The IPAA recommends ramping up domestic natural gas and oil production instead, although oil producers are already dealing with supply-chain issues, limited capital and investor pressure to boost returns.
Francisco Blanch, managing director and head of global commodities at Bank of America Global Research also voiced criticism in a segment on Bloomberg Television.
“I don’t think it’s a great idea given the incredibly tense geopolitical world we live in today,” Blanch said. By using up the reserve, the U.S. could be putting itself “more in the hands of OPEC+ … eventually you’re just ceding more and more market control.”
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