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President Joe Biden announced that the U.S. will release 50 million barrels of crude from its strategic reserves to combat the rapid rise in energy prices.
This exercise is a global effort by energy-consuming nations including China, Japan, India, South Korea, and the U.K. to calm the exponential rise in fuel prices.
Crude oil prices recently touched a seven-year high as West Texas Intermediate crude futures crossed $85 a barrel. The national average for a gallon of gas was recorded as $3.409 on Monday, according to AAA, up from $2.11 one year ago. Crude prices make up between 50% and 60% of what consumers pay to fill up their tanks, AAA said.
Of the 50 million barrels, 32 million will be issued from the U.S. Strategic Petroleum Reserve (SPR) as an exchange over the next several months, while 18 million will come from an accelerated release from previously authorized sales, the White House said in a statement Tuesday.
With the congressional elections due next year, President Biden’s presidency has faced a lot of backlash and declining approval ratings amid rising inflation. In a statement, the White House said, “The President stands ready to take additional action, if needed, and is prepared to use his full authorities working in coordination with the rest of the world to maintain adequate supply as we exit the pandemic.”
The U.S. move to tap into the SPR risks a backlash from the Organization of the Petroleum Exporting Countries and its allies (OPEC+).
The U.S. government called on OPEC+ to boost output amid rising energy prices in August, but the group decided to maintain its previously agreed-upon schedule of raising production by 400,000 barrels per month.
In April 2020 the OPEC+ decided to remove nearly 10 million barrels per day from the market as demand for petroleum products fell during the pandemic. Other producers, including the U.S., also curbed production as oil prices plunged to all-time lows.
(With inputs from CNBC)