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America's emergency oil stocks are at 38-year low, but still firepower

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CNN Business

Presidents don’t have magic wands to stave off inflation. But they do have a powerful tool that can help ease the pain of high gas prices: the Strategic Petroleum Reserve.

President Joe Biden has relied on this emergency oil stockpile more than any of his predecessors to bring down the high pump prices that voters detest.

The SPR is a series of underground storage caves that hold large amounts of crude oil that could be released during wars, hurricanes or other moments of glass breaking. And Biden hasn’t hesitated to do just that, especially since Russia invaded Ukraine in February.

The amount of oil in the SPR has declined by roughly a third – 36% to be exact – since Biden took office in January 2021. That left this emergency oil stock at its lowest point since June 1984 – both the U.S. economy and energy demand were significantly smaller than today.

And Biden is not over yet. A senior administration official said on Tuesday evening that the president plans to announce the sale of another 15 million barrels from SPR on Wednesday.

Biden has made it clear to his advisors that he is ready to allow future releases to stabilize the oil market if necessary.

More importantly, this latest sale, which will be announced Wednesday, is not entirely new. This is part of the previously announced plan to release 180 million barrels of oil in six months. This record-breaking emergency statement, detailed in late March, was running slightly behind schedule. It looks like the administration will hit its 180 million goal, it will just take longer than expected.

SPR headlines are shaking up an energy market that is already on the sidelines in the face of a potential recession. US oil prices fell 3% to $82.82 on Tuesday, returning to levels last seen before rumors of controversial OPEC+ production cuts returned. Analysts blamed the sales on SPR news.

This sell-off in oil prices alone could help limit gasoline prices, analysts say, which is already falling before Biden takes further action.

While it’s hard to pinpoint how much of an impact the SPR announcement had on prices, oil industry veterans told CNN that Biden’s strategy was effective and not only helped soften the blow for the war in Ukraine, but also for the lackluster supply from both OPEC+. He says it helps alleviate the blow. and US oil producers.

“Give them thanks. “They’ve done a tremendous job meeting the goal of lowering energy prices,” said Michael Tran, general manager of global energy strategy at RBC Capital Markets.

Gas prices aren’t cheap — they brought a normal nationwide average of $3.87 a gallon on Tuesday — but they’re well below the record $5.02 set in June.

Stating that oil prices did not rise from the all-time highs set in 2008, Tom Kloza, head of global energy analysis of the Oil Price Information Service, said, “It has been effective so far.” SPR for this. Management is focused on laser-focused gasoline.”

Kloza said he thinks the chances of gas prices falling to recent lows of $3.67 per gallon are better than 50/50. But instead of giving credit US policy, Kloza quoted reopening of refineries that were shelved due to market forces, recession fears and maintenance.

“I don’t think they have to do anything by 2023. The market does most of the work for the White House,” Kloza said. “I think gasoline is destined to drop further.”

It’s no loss to oil market watchers that this latest announcement on SPR sales was made just weeks before voters went to the polls ahead of the critical midterm elections.

“Given we’re only a few weeks away from the midterm elections and the OPEC cut, the Biden administration is trying to ensure that energy prices don’t come to mind first,” said Andy Lipow, president of consulting firm Lipow Oil Associates.

But Lipow noted disappointment that despite complaints about high energy prices in the oil industry, SPR publications “do nothing to encourage additional oil production.”

Not only that, Biden’s aggressive emergency broadcasts reduced SPR and potentially limited the government’s ability to respond to future shocks.

The reserve is not a bottomless oil well. It’s more of a rainy day fund, and each release leaves less oil for the next downturn, whenever and wherever.

That’s why the administration plans to detail its efforts to replenish the emergency reserve, putting an important mark for market participants given the scale of federal action over the past six months.

Biden will announce that the administration plans to repurchase crude for emergency reserves if prices are between $67 and $72 a barrel or below.

The senior official said this would serve as “an important signal for manufacturers”, helping to “moderate and stabilize” prices not only when prices are rising but also when they are low.

The plan also serves the purpose of countering criticism of the unprecedented scale of Biden’s reserve releases, which officials say underlines management’s intention to replenish when market conditions make it most advantageous.

“We think the SPR is an incredibly important national security asset and we want to make sure it serves its purpose in the future,” he said, noting that it is still the world’s largest reserve.

Despite recent urgent sales, the SPR still has more than 400 million barrels of oil, a significant firepower that can be used in the coming months to respond to the disruptions caused by the war in Ukraine.

“400 million barrels is a lot of barrels,” the official said.

OPIS analyst Kloza said he was not worried about the contraction in SPR, in part because more than a decade ago the US and Canada had the ability to sharply increase production if necessary (and spurred by higher prices).

“Sometimes reserves become archaic,” Kloza said. “I wouldn’t worry about it until I fell a little more.”

– Alison Kosik of CNN contributed to this report

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