U.S. Set to Draw Record Amount From Its Emergency Oil Reserve

The U.S. government is contemplating releasing up to 180 million barrels of oil from its emergency supplies, people familiar with the matter told Reuters, in a desperate bid to lower high fuel prices and curb inflation.

If the White House follows through with this plan, it would represent the largest release from the Strategic Petroleum Reserve (SPR) in its nearly 50-year history and mark the third time in the past six months that the U.S. government has tapped into its emergency supplies. The 180 million barrels of oil reportedly set to be accessed is equivalent to approximately two days of global demand, according to Reuters, and will be drawn from gradually over several months, with some sources saying that the plan is to tap into as much as 1 million barrels of oil per day.

President Joe Biden is expected to confirm these plans at 13:30 p.m. Eastern Time, when the White House has him scheduled to discuss "his administration's actions to reduce the impact of Putin's price hike on energy prices and lower gas prices at the pump for American families."

President Biden's intentions were revealed a day before the International Energy Agency (IEA) member countries are due to meet to discuss and decide on a collective oil release aimed at cooling global crude prices that hit 14-year highs in March after Russia invaded Ukraine and shortly before the Organization of the Petroleum Exporting Countries (OPEC) refused to abide by requests from the West to significantly ramp up supply.

Oil Prices Fall Sharply, but OPEC Refuses to Play Ball

News of Biden's impending announcement pushed oil prices down. When markets opened in the U.S., West Texas Intermediate (WTI) and Brent crude were both down roughly 5% to about $102 and $108 per barrel, respectively.

Goldman Sachs, in a research note sent to its clients, claimed that releasing 180 million barrels over six months would help the market rebalance this year but not resolve the structural supply deficit caused by cutting Russia out of the picture.

Oil prices have rocketed since Vladimir Putin ordered his country to invade Ukraine in late February and governments around the world responded by hitting Russia, the second biggest exporter of oil, with hefty sanctions. Subsequent supply concerns drove Brent crude futures up to about $139 per barrel earlier in March, the highest level since 2008.

Other than drawing more barrels from its own reserves and counting on IEA members to follow suit, the U.S. has been trying to convince Saudi Arabia, the biggest oil exporter in the world, and other big OPEC producers to sharply ramp up supplies and take the heat out of prices. However, OPEC has been refusing to budge, confirming that it will increase supply by a modest 432,000 barrels per day in May and not by more.

Consistently High Oil Prices Could Lead to a Recession

President Biden is desperate to lower fuel prices as it has contributed to high inflation and hurt his administration's approval rating ahead of the midterm elections in November. High oil prices harm Americans in many ways, affecting, among other things, driving costs and the amount paid to heat homes.