WASHINGTON (AP) — President Joe Biden on Thursday ordered the release of 1 million barrels a day of oil from the country’s strategic petroleum reserve for six months in a bid to control energy prices, which have skyrocketed after the United States and its Allies have imposed heavy sanctions on Russia because of its invasion of Ukraine.
The president said it wasn’t known how much gasoline prices could fall as a result of his move, but he suggested it could be “anything between 10 cents and 35 cents a gallon.” Gas averages about $4.23 a gallon, according to AAA, compared to $2.87 a year ago.
“The bottom line is that if we want lower gas prices, we need to ship more oil now,” Biden said. “This is a moment of consequence and danger for the world and a pain at the pump for American families.”
The President also wants Congress to impose financial penalties on oil and gas companies that lease public land but do not produce. He said he will invoke the Defense Production Act to encourage mining of critical minerals for batteries in electric vehicles, part of a broader push to switch to cleaner energy sources and reduce fossil fuel use.
The actions show that oil remains a weak spot for the US. Higher prices have hurt Biden’s domestic approval and netted billions in oil export dollars for the Russian government, which is waging war on Ukraine.
Supply tapping would create pressure that could lower oil prices, although Biden has twice ordered reserves released without causing a significant shift in oil markets. Biden said Thursday he expects gasoline prices could fall “quite significantly.”
Part of Biden’s concern is that so far, high prices have not resulted in a meaningful increase in oil production. The planned release is a way to ramp up supplies as a tether until oil companies ramp up their own production, with officials estimating domestic production will grow by 1 million barrels a day this year and another 700,000 barrels a day in 2023.
Markets reacted quickly and crude prices fell about 6% to around $101 a barrel during Thursday’s trading. Still, oil prices have risen from around $60 a year ago as supply fails to keep up with demand as the global economy begins to recover from the coronavirus pandemic. This inflation problem was exacerbated by Russian President Vladimir Putin’s invasion of Ukraine, which created new uncertainties about oil and gas supplies and led to retaliatory sanctions by the US and its allies.
Stewart Glickman, an oil analyst for CFRA Research, said the release would bring near-term relief to prices and was akin to “taking some Advil for a headache.” But markets would ultimately consider whether after the releases ended, the underlying issues that led to Biden’s decisions persisted.
“The root cause of the headache will likely still be there after the drug wears off,” Glickman said.
Biden has held talks with allies and partners to participate in additional oil releases to allow the global market to get more than the 180 million barrels promised by the US
According to the US Energy Information Administration, Americans use about 21 million barrels of oil on average each day, with about 40% of that going for gasoline. This sum makes up about a fifth of the total global oil consumption.
Domestic oil production is equivalent to more than half of US consumption, but high prices have not prompted companies to return to their pre-pandemic production levels. The US is producing an average of 11.7 million barrels daily, up from 13 million barrels in early 2020.
Republican lawmakers said the problem stems from the government’s opposition to oil permits and the construction of new pipelines like the Keystone XL. Democrats say the country needs to shift to renewable energies like wind and solar, which could reduce dependency on fossil fuels and reduce Putin’s influence.
Sen. Steve Daines, R-Mont., has blasted Biden’s action to tap the reserve without first taking steps to increase American energy production, calling it a “band-aid on a gunshot wound.”
Daines called Biden’s actions “desperate steps” that avoid what he called the real solution: “investing in American energy production” and “getting oil and gas leases back on track.”
The government says ramping up oil production is a gradual process and the clearance would buy time to ramp up production. It also wants to incentivize greater production by charging fees for unused leases on government land, which would require congressional approval.
Oil producers have been more focused on meeting the needs of investors than consumers, according to a survey released last week by the Dallas Federal Reserve. About 59% of executives surveyed said investor pressure to maintain “capital discipline” in the face of high prices was the reason they stopped pumping, while less than 10% blamed government regulation.
In his comments Thursday, Biden sought to shame oil companies he says are focused on profits rather than spending more barrels, and said increasing oil supplies is a patriotic commitment.
“This is not the time to sit on record profits: it is time to work for the good of your country,” the President said.
The continued release from reserves would be a significant sum and would nearly close the domestic production gap compared to February 2020, before the coronavirus caused a sharp drop in oil production.
Still, the oil’s politics are complicated, with both industry representatives and environmentalists criticizing the proposed release. Groups like the American Petroleum Institute want to make drilling easier, while environmental organizations are saying that energy companies should instead be forced to pay a special tax on windfall profits.
The government announced in November the release of 50 million barrels from the strategic reserve in coordination with other countries. And after the start of the Russo-Ukrainian war, the US and 30 other countries agreed to an additional release of 60 million barrels from reserves, with half the total coming from the US
According to the Department of Energy, which manages it, the reserve held more than 568 million barrels of oil as of March 25. Once released, the government would begin replenishing the reserve once prices have fallen sufficiently.
News of the government’s planning was first reported by Bloomberg.
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Associated Press contributors Alex Veiga, Darlene Superville, Matthew Daly, and Michael Balsamo contributed to this report.