On Tuesday, the Biden administration announced it would release 50 million barrels of oil from the strategic fuel reservoir in a concerted effort with other countries to lower fuel prices. Here’s all there is to know about the strategic fuel reservoir.
What is the Strategic Fuel Reservoir?
The U.S. Strategic Fuel Reservoir consists of four underground salt caves along the shores of Louisiana and Texas that currently have about 605 million barrels of oil. This is an amount that could meet U.S. demand for several weeks.
The inventory belongs to the U.S. government and is managed by the Department of Energy. Under federal law, U.S. presidents have the authority to remove oil from the reservoir in order to reduce supply disruptions.
A president may extract oil if he believes the move is necessary because of a “severe disruption in energy supply,” defined as a national energy shortage that is large in scope and duration, has a “nature of emergency” or could have a “major negative impact” on the national economy.
Why do people want to extract oil dWhat now?
Fuel prices have risen steadily in the 12 months since President Biden was elected. Prices for gas stations increased by 61% compared to a year ago, when regular unleaded fuel was sold last week at an average price of $ 4.3 per gallon, according to the Ministry of Energy.
Inflation jeopardizes the Democratic Party’s agenda, and pressures the White House to act. White House officials spent weeks discussing what to do about rising energy prices, especially fuel. Prices of fuel and heating oil – two products refined from crude oil – have risen to the highest level since 2014.
In a statement issued Tuesday, the White House said President Biden was “using every tool available to him to lower prices and address fuel shortages.”
Will removing fuel from the reservoir lower the price for refuelers at stations?
Increasing fuel inventory should lower prices for drivers, but is no guarantee of that. Futures market markets are complex and prices vary for many reasons. Even if the price of crude fuel falls, there is no guarantee that the price of fuel will fall in its wake or if so, at what rate the price will fall.
Coordination with other countries to release a lot of oil at once may be one way to ensure price reductions. Even if prices fall, other forces in the market may cause them to rise again.
“Ultimately, the impact will be relatively short-lived,” said Stephen Nali, acting director of the U.S. Department of Energy, when speaking to a Senate committee recently.
Who supports the removal of fuel from the reservoirs?
In early November, 11 Democratic senators, including Elizabeth Warren of Massachusetts, wrote a letter to Biden offering to remove fuel from the emergency reservoir. “We ask that you consider all the tools available to you to lower US fuel prices,” the letter said.
At the same time, Biden’s own advisers began examining the emergency stockpile after failing in their diplomatic attempt to get the Organization of the Petroleum Exporting Countries (OPEC) to increase productivity more than they had previously planned.
What are the considerations against using the strategic fuel reservoir?
Critics say the reservoir was created for emergencies and to protect U.S. needs in an emergency, not to help customers save a few bucks while refueling. U.S. oil companies say a better solution is to focus on the U.S.’s ability to pump more oil from the ground.
“Removing some crude oil from the strategic fuel reservoir will do little in terms of impact on fuel prices in the short and long term may even be more damaging than it is efficient,” said U.S. Search and Production Council CEO Anne Bradbury in a statement issued before the announcement of the barrel removal. The more correct way to help ease rising energy prices is to focus on supporting local oil and natural gas production.
What authority is used to remove fuel from the strategic reservoir?
Senior officials in the Biden administration said on Tuesday that the president is not exercising his emergency authority but other powers available to him for less urgent situations. Most of the oil coming out of the reservoir, 32 million barrels, will not be sold but will be shipped as part of a stock exchange designed only to bring more oil to market in the immediate future. Buyers will have to send oil back to the government to replenish the reservoir between 2022 and 2024, the Ministry of Energy said.
Who set up the strategic fuel reservoir?
Congress approved the establishment of the Strategic Fuel Reservoir in 1975, following the Arab oil embargo, as a protective layer against supply shocks from oil-exporting countries. However, energy markets have changed dramatically in recent years, and so has the state’s use of the reservoir, which has a capacity of 714 million barrels. Restarting oil shale production in America has made political leaders in both parties less concerned about a state of scarcity.
The Trump administration considered selling some of the oil in the reservoir in 2018 but then decided not to do so. Congress began using the pool as a way to raise money to fund tax cuts and other expenses. Following approval from Congress, the Department of Energy has conducted seven sales since 2017, disposing of more than 60 million barrels, or about 8.6 percent of what the reservoir contained, ministry officials said.
When was oil previously extracted from the reservoir?
Since the first barrels were sent for storage in 1977, oil has been removed from the reservoir about 24 times. Many recent sales have been congressional approval, and the Department of Energy has also made some exchanges after hurricanes and closures on maritime shipping lanes hit existing power within U.S. borders.
The U.S. has also chosen to issue oil in coordination with other countries that hold their own reservoirs on three separate dates: after Operation Desert Storm in 1991, after Hurricane Katrina in 2005 and at the height of the Arab Spring in 2011. The International Energy Agency, a Paris-based observer agency, coordinated The removal of these barrels with other countries that are members of the Energy Agency, although the leaders in the countries can decide whether they want their country to participate in the removal of the oil from the reservoirs or not.
What happens when oil is extracted from the reservoirs?
Oil coming out of reservoirs in the US can take up to two weeks to reach markets from where it is stored in underground salt caves, sometimes up to 600 meters long. Pipelines that transmit crude oil to distilleries that turn it into fuel for cars or other petroleum products.