Why is the United States using the Strategic Petroleum Reserve?
After Russia's invasion of Ukraine, oil prices rose sharply. In response to the energy crisis,
In the first chapter, we will show that the US will use the maximum capacity in its strategic petroleum reserve.
In the second chapter, we will show that the strategic petroleum reserve was used only three times in the history.
In the third chapter, we will show that only the president has the right to use the strategic petroleum reserve.
1. Joe Biden Released 180 Million Barrels of Oil From the US Strategic Petroleum Reserve.
Domestically, the Biden administration is under pressure. Midterm elections are to be held in the USA in the fall, and the Democrats risk losing their majority. Republicans blame Biden for skyrocketing inflation and the rising cost of living. Record-high fuel prices for cars, which are putting more pressure on the American middle class, are a pain for the president.
From September 2021, gas prices began to rise sharply. In November 2021, President Biden decided to release
On March 31, 2022, in response to rising oil prices, the White House announced that it would begin using its oil reserves
The second part of President Biden's plan is to create long-term US energy independence. "Ultimately, we and the whole world need to reduce our dependence on fossil fuels altogether. We need to choose long-term security over energy and climate vulnerability," Biden said.
The graph above shows that the US Strategic Petroleum Reserve is at the level of 1985. After Biden began releasing barrels from November 2021, oil reserves began to decline sharply. As of June 2022, oil reserves amounted to 49324 thousand barrels (51.8 US$ Billions).
1.1. Joe Biden can use the Strategic Petroleum Reserve for Six Months.
According to the Energy Policy and Conservation Act (EPCA) already in place in the Energy Department of the USA, the president can use strategic petroleum reserves during 180 days. Oil can be pumped out of storage at a maximum rate of 4.4 million barrels per day for 90 days. Then the extraction rate starts to decrease as the vaults become empty.
2. The Strategic Petroleum Reserve has Only Been Used Three Times in History.
The Strategic Petroleum Reserve has only been used three times in history in 1991 by President George H. W. Bush, in 2005 by George W. Bush, and in 2011 by President Barack Obama.
On January 16, 1991,
When the price fell below 20US$ per barrel in February-March 1991, the Strategic Petroleum Reserve stopped releasing oil and sold only 17 million barrels ($272 million). After this event, the price of crude oil did not rise above 20US$ per barrel for the next 5 years until December 1996 when the price of crude oil was 21.3US$ per barrel.
From August 23, 2005 to August 31, 2005, the United States faced one of the most destructive hurricanes in its history - Hurricane Katrina. Oil reserves are stored in the Gulf of Mexico, which was hit by Hurricane Katrina. Katrina caused significant damage to the strategic oil reserve. The hurricane shut down 95% of crude oil production and 88% of gas production in the Gulf of Mexico. At the time, it was a quarter of all US production. About 730 gas and oil rigs and platforms were evacuated due to the hurricane.
The graph above shows that the US sold 30 million barrels (2.97 US$ billions) in the period June-September 2011. Together with IEA partners, the USA released 60 million barrels (5.94 US$ billions). This sale of oil reduced its price by 8% from 108 US$ per barrel in July 2011 to 100 US$ per barrel in October 2011.
3. Who and When Can Use the Strategic Oil Reserve?
The strategic petroleum reserve is an emergency oil reserve kept by the United States Department of Energy. The reserves are located in the Gulf of Mexico - Louisiana and Texas. There are 4 objects where oil reserves are stored: Bryan Mound, Big Hill, West Hackberry and Bayou Choctaw.
There are three possible examples for using a strategic petroleum reserve:
- Full drawdown - the president can issue a decree on the complete reduction of the reserve to counter "severe energy supply interruption." The Energy Policy and Conservation Act defines it as "a national energy supply shortage."
- Limited drawdown - there is a threat that can lead to a deficit of energy supply of a significant scale and duration.
- Test sale or exchange - the Minister of Energy has the authority to carry out selective test sales and distribution of oil from the reserve. He also has the authority to exchange oil, but within a certain time the oil must be returned to the reserve.
Faced with a sharp rise in energy prices due to sanctions against Russia, the United States began to use its strategic petroleum reserve in an unprecedented amount. Never in the history of the United States has the reserve been used in such circumstances, which creates even greater challenges for American dominance in the field of energy pricing. Only three times in history has the US used its reserves. These steps had a certain impact on the price of oil.
The US released announced 180 million barrels of oil from its reserves to reduce the price of oil in the world in 2022. By releasing one million barrels per day from their reserves, the US and its allies managed to reduce the price of oil below 90 US$ dollars per barrel in September 2022.
Date= 6th September 2022, Gold price – 1722.10$, Silver price – 18.29$, Platinum price – 867.30$, Oil price – 86.79$