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Thursday, December 2, 2021

Biden taps into the oil reserve to ease gas prices, but will it work?

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After many weeks of signals and speculation, a group of major oil consumers, including the United States, announced a coordinated plan to address rising energy costs by releasing crude from strategic reserves. The question now is whether it will work.

In a rare episode of coordination with other oil-consuming nations, the United States government said Tuesday that it planned to offer as much as 50 million barrels of its Strategic Petroleum Reserve. porcelain, India, Japan, South Korea and the United Kingdom will join the effort.

The US decision to tap into emergency stocks comes as President Joe Biden faces increasing pressure for the stem rising fuel prices for Americans hit by the highest inflation rate in decades. But it also carries risks, including a possible backlash from OPEC + that threatens to nullify any relief. And with so many lingering unknowns, including whether the oil is even the grade the US market is seeking, it’s hard to say whether homes will actually see much, if any, respite in time to avoid a travel season. brutally expensive vacation.

This is what we know so far:

How quickly will the additional crude get to market?

The Department of Energy is offering 32 million barrels in exchange form and 18 million in advance sales pre-approved by Congress. Offers for the exchange close Dec. 6. For those who obtain barrels from the exchange program, the supply is expected to arrive mainly between January and April, although some could arrive at the end of December. For the barrels that are for sale, the tender will not be announced before December 1. 17. It can still be weeks between that tender delivery and the actual delivery, which means little hope for immediate relief.

Who will receive the oil?

The US government is expected to make the oil available to eligible bidders, including major oil companies and international trading companies. In previous versions of SPR, refineries that received oil included large companies such as Marathon Petroleum Corp. and Exxon Mobil Corp. Contracts have also been awarded in the past to commercial companies such as Trafigura and Unipec of China. Some barrels of previous sales have also been shipped abroad; So far, there is no provision to keep this oil in the US We will know who will get it this time by December. 14

Where is the oil now?

The DOE operates four underground storage caverns, two in Texas and one in Louisiana. Together, they currently store about 606 million barrels, the lowest since 2003 because it has been selling it as part of a government-mandated program.

What type of crude is being released?

The DOE has not released specific details on the type of crude being offered, but did provide some clues. Up to 10 million barrels each will be available from two sites in Texas, while 5 million will come from one site in Louisiana. Those places mainly contain acidic crude oils that are rich in sulfur. Up to 7 million barrels will be offered from another site in Louisiana that contains a majority of sweet crude. That’s important because acidic crudes have fallen out of favor with refineries globally, requiring more processing than normally costly. natural gas.

Will this release make a dent?

The whole world has been talking about this possibility for so long that many traders say the plan for the launch was already built into oil prices. That would explain why oil prices have risen after the announcement. There is also the fear that OPEC + officials, who do not like being sent, may respond by canceling plans to boost their own production, denying the addition of stored oil to the market. The confrontation establishes a fight for control of the world energy market. In short, consumers seeking pump relief may not see lower gas prices for months, if they do.

Furthermore, in 2019, before the pandemic, the United States consumed 20 million barrels of oil per day. Therefore, the 50 million that are released from US reserves, although they are in conjunction with foreign releases, may not be enough to alter the market equation much.

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