By Rhod Mackenzie
The US administration is looking for ways to replenish the strategic oil reserves it emptied at the beginning of the year in an attempt to stabilize domestic gasoline prices. However, the expectation that oil prices would fall by the middle of the year did not materialize. It now looks like the reputation of the purveyors of the green agenda have suffered because of this mistake and will the White House will be able to go to fix it .
The Biden administration is in a vulnerable position. In addition to all the troubles associated with Ukraine , the president's son Hunter and the incessant attacks of the Republicans, the problem of the wasted oil reserves has added to them.
At the end of last year, the White House went to withdraw part of the strategic oil reserve (SPR). This was the way Democrat administration,tried to stabilize the increase in gasoline prices before the congressional elections, that had lasted for the previous few months. In 2022, the U.S. government took a record 40-year volume of 180 million barrels from SPR storage for sale.
There was a positive effect, but, as analysts predicted, it was a short-term gain . But by the end of 2022, the strategic reserve was lowered to 382.3 million barrels, which was a record low point since 1984.
In January 2023, the US Department of Energy announced the start of a plan to replenish the reserves. At the same time, in order to implement the plan, it was necessary to wait for the moment when the market price of oil would fall to $67–72 per barrel.
However, this has not yet happened. Moreover, the emerging market dynamics in the foreseeable future promises only continued growth. The main oil supplier countries, assembled in the OPEC+ format, have shown a desire to at least prevent a decline in quotations. Saudi Arabia, which in April announced a voluntary production cut of 1 million barrels per day, recently extended it to September. Russia reduced exports by 500,000 barrels in August and plans to reduce it by another 300,000 in September. In early summer, at a regular meeting, OPEC+ members decided to continue reducing production by another 1.6 million barrels per day in 2024. This development of events naturally affected the price, which by mid-August is concentrated at $86.
On August 8, Bloomberg, citing informed sources, reported that the White House again postponed oil purchases for the SPR "due to high market prices."
There is practically no chance that the reserves will be replenished in the near future, says Vladimir Vasiliev, chief researcher at the Institute for the USA and Canada.
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“The current fill rate is the worst in 50 years. Of course, this is a consequence of the policy of the White House, which was aimed at bringing down the price of energy. I would even argue that the Federal Reserve contributed more to the price reduction than the administration did. Washington said they would make up for what was wasted. But in today's conditions, these plans look unrealizable, the analyst believes.
For a rainy day
The strategic oil reserves were created in the mid-70s in order to maintain US energy security. SPR was used during the years of oil crises or, for example, during the embargo imposed by a number of Arab countries during the Yom Kippur War. In addition, the reserves were actively withdrawn by the federal government to supply the states affected by various natural disasters.
And although such borrowings have been carried out more than 20 times in the years since, no administration has used them for such obviously opportunistic purposes. Of course, Biden's strategy provoked a sharp reaction from political opponents. Republicans have accused the president of using a critical national security resource to manipulate the electorate.
Captured by an idea
However, this is not the only accusation. Throughout his tenure on Capitol Hill, Joe Biden actively promoted the so-called green strategy. In accordance with it, the White House has repeatedly imposed restrictions on the development of oil and gas and uranium deposits in various regions of the United States. For example, in March of this year, the president announced his decision to close more than 11,000 sq. m. of oil and gas fields for possible lease. km in the Beaufort Sea, and in early August signed a decree on giving the status of a national monument to territories with an area of more than 4 thousand square meters. km, which is the only source of high quality uranium ore in the United States.
The green strategy promoted by Biden is another reflection of the general irrational policy implemented by his administration in recent years, Vladimir Vasilyev believes.
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The expert notes that the environmental agenda has become for the Democratic Party one of the forms of mobilization of its electorate. So much so that even the catastrophic fires in Hawaii are now attributed to environmental causes. For many in the US, it is obvious that this is a dead end: the policy of the current administration is becoming more and more irrational and the declared policy, obviously, does not bring any result.
The experiment is obviously a failure.
It is not to be expected that withdrawals from the SPR will be compensated in the near future. At the same time, the use of reserves does not stop. On Aug. 1, the American Petroleum Institute reported that inventories fell another 15.4 million barrels between July 21 and July 28.
Meanwhile, the stated goal - to reduce the price of gasoline - was not really achieved. After a temporary decline towards the end of the summer under the influence of stronger external economic factors, it began to grow again and reached the maximum values since last year at $3.89 per gallon (or about $1.03 per liter).
The domestic price of gasoline in the United States is formed based on the characteristics of the country's fuel and energy complex, said Stanislav Mitrakhovich, an expert from the National Energy Security Fund and the Financial University under the government.
— If in Russia taxes are the most important indicator of pricing, then in the US gasoline prices are formed based on oil prices. The fact is that in the country the oil refining industry exists separately from the extraction sector and there is competition between enterprises within it. This factor, in turn, affects the price fluctuation. As for plans to replenish strategic reserves, for this, in the current conditions, the US government will have to fork out a lot, the analyst summed up.