President Joe Biden made this week a major announcement regarding oil.
“I’m announcing that the largest ever release from the U.S. Strategic Petroleum Reserve to help provide the supply we need as we recover from this pandemic,” Biden said on Tuesday.
50 Million barrels of oil from the United States will be released to the market, and could reach the markets by mid-to late December.
According to the White House, the administration hopes the move will help lower gas prices, which are the highest they’ve been since 2014, about $3.43 across the country.
The United States consumed approximately 20.5 million barrels per day of oil in 2019, so 50 million barrels is less than a two-and a half-day supply.
The president believes it will make a big difference.
“Our combined actions will not solve the problem of high gas prices overnight, it will make a difference. It will take time, but before long you should see the price of gas drop where you fill up your tank,” said Biden.
“America has an enormous amount of strategic oil reserves which are supposed to be used when there are supply disruptions, like if there’s a massive hurricane that disrupts the oil facilities. In this case, however, we don’t have the supply disruptions like due to weather, we just have rising oil prices,” said Jack Strauss. An economics professor at University of Denver, who is specialized in forecasting and applied economists.
He explains why he is so concerned about oil prices.
“The major driver of inflation, always, is oil prices. Because when they increase, they don’t increase by two, three, four or five percent, they increase by 30, 50, 60%,” said Strauss.
Some people are skeptical about the possibility of lower gas prices due to oil being released.
“We feel that, that is just upsetting the cart. You see just as a result of that happening, OPEC is already looking to see how to counter that and we saw today the price of oil is up about 2%,” said Brady Pelton, general counsel for the North Dakota Petroleum Council which represents oil producers and contractors in that state.
North Dakota is home to the second highest daily production of oil in the US, at approximately 1.2 million barrels per day. Brady states that oil production is about 1% higher than projected.
“I’d say that gradual increase in North Dakota production will occur in early 2022. Again that’s so speculative, it’s almost not worth mentioning,” said Pelton.
Other organizations also anticipate an increase in oil production.
The International Energy Agency has released a monthly report that shows a 1.5 million barrels per day increase over the next few months. This is a sign that prices may soon begin to fall.
Strauss said that “Oil production, particularly Fracking, does respond to an increase in oil prices.”
Higher prices often mean higher production.
The Organization of the Petroleum Exporting Countries (OPEC) is the next to move.
Biden’s announcement could prompt a reassessment of oil production by OPEC.