Biden says he will release 10 million more barrels from dwindling ‘oil piggy bank’ after OPEC production cuts – but this is the big risk of more withdrawals

Biden says he will release 10 million more barrels from dwindling 'oil piggy bank' after OPEC production cuts - but this is the big risk of more withdrawals

Biden says he will release 10 million more barrels from dwindling ‘oil piggy bank’ after OPEC production cuts – but this is the big risk of more withdrawals

In an effort to counter rising prices at the pump, President Biden plans to loot the nation’s “oil piggy banks.”

In November, the Ministry 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+) said it would cut oil production by 2 million barrels a day – putting extra pressure on global energy supplies.

But with the country’s emergency reserve already at its lowest level since 1984, some experts are worried about the long-term consequences.

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US gas prices are rising again

Gas prices hit a record high of $5.02 per barrel. 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 falling oil prices.

But even before OPEC+ declared that they would cut oil production, gas prices began to rise again in late September. This may have been due to a combination of rising demand, refinery problems and the upcoming European ban on Russian oil.

Now with OPEC+’s latest decision, prices are expected to escalate even more. 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 national average gas price was $3.89 per gallon, up about 10 cents from the previous week, according to AAA.

Biden disappointed by ‘short-sighted’ production cut

Hours after the OPEC+ announcement, the White House said the president was disappointed by “OPEC+’s short-term decision to cut production quotas” as the global economy still grapples 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 energy minister would explore other options to increase domestic production.

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Biden also called on gas companies to keep lowering gas prices.

Why making large withdrawals from the reserve can be risky

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

Per On September 30, the reserve has fallen to 416 million barrels, according to the department’s data.

The Independent Petroleum Association of America (IPAA) stated back in November 2021 that they strongly opposed tapping oil stocks to counter gas prices. The group’s concern was that depleting the emergency reserve could put the United States at risk if global or domestic oil supplies reach dangerously low levels before supplies can be brought back up.

The IPAA recommends increasing domestic natural gas and oil production instead, even though 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 good idea given the incredibly tense geopolitical world we live in today,” Blanch said. By depleting the reserve, the U.S. can put itself “more in the hands of OPEC+ … eventually you just give more and more market control.”

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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