Business

U.S. to release 50 million barrels of oil from reserve in move to bring down prices

The U.S. government will release 50 million barrels of oil from its strategic petroleum reserve on to the market in an attempt to bring down the price of crude and gasoline.

Currently more than 600 million barrels are kept in storage in case they are needed in an emergency

The U.S. government keeps about 600 million barrels of oil stockpiled in case they are needed during natural disasters or other unexpected events. (Andrey Rudakov/Bloomberg)

The U.S. government will release 50 million barrels of oil from its strategic petroleum reserve on to the market in an attempt to bring down the price of crude and gasoline.

The White House said Tuesday that the Department of Energy will release millions of barrels of stockpiled oil to "address the mismatch between demand ... and supply."

The U.S. strategic petroleum reserve currently holds more than 600 million barrels of crude in stockpile to ensure supply during unexpected natural disasters or other national security events.

The reserves are stored in caverns created in salt domes along the Texas and Louisiana Gulf Coasts. 

More than 32 million barrels will be released in the next few months, while the other 18 million will be an acceleration of the release of barrels that had already been planned beyond that.

"As we come out of an unprecedented global economic shutdown, oil supply has not kept up with demand, forcing working families and businesses to pay the price," Energy Secretary Jennifer Granholm said in a statement. "This action underscores the president's commitment to using the tools available to bring down costs for working families and to continue our economic recovery."

Goal is to bring down high prices

While U.S. President Joe Biden's goal is to bring down the price of energy a little amid high inflation, the U.S. is not the only country feeling the pinch. So, the move will be matched by numerous other countries that have similar reserves, including India, Japan, China, South Korea and the United Kingdom.

All told, close to 70 million barrels of oil may be released.

"It is our understanding the administration is looking to keep prices below $80 [per barrel] and believe they have the ability to do another release of similar magnitude through the exchange mechanism," said RBC commodity analyst Helima Croft. "They are keenly focused on reducing gasoline and diesel prices ahead of the holidays, but also see this as part of a broader strategy to deal with inflationary pressure and supply chain challenges."

This is a reaction to a move last month by the oil cartel known as OPEC, and its allies, to be cautious about turning on the oil spigots.

Analyst Craig Erlam with foreign exchange firm Oanda said the move by Biden and allies to free up barrels was "more as a warning to OPEC+ to not ignore consuming countries."

"These countries have vast reserves but they are intended for emergencies, not to start price wars with producers every time they get a little high," he said. "The question now is how OPEC+ will respond as the group can easily wipe out any benefits of the releases by slowing their planned monthly output increases."

With files from The Associated Press

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