U.S. to release extra 1 million barrels of oil a day from strategic reserves to battle high prices — and Putin
Move aimed at taking away leverage from Russia, which benefits greatly from expensive oil
U.S. President Joe Biden is ordering the release of one million barrels of oil per day from the nation's strategic petroleum reserve for six months, in a bid to control skyrocketing energy prices and put further pressure on Russia to halt its invasion of Ukraine.
Biden made the formal announcement of the plan on Thursday morning, calling the size and scope of the oil release "unprecedented."
"The world has never had a release of oil reserves at this one million per day rate for this length of time," the White House said in a statement. "This record release will provide a historic amount of supply to serve as bridge until the end of the year when domestic production ramps up."
The U.S. previously spearheaded a global move by friendly nations, including Canada, to release 60 million barrels worth of oil from reserves. But the impact of that move didn't last, which led to the decision this week to promise a sustained new release of oil onto the market.
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The move shows how the supply and price of energy has emerged as a key vulnerability for the U.S. at home and abroad. Higher prices have crushed Biden's approval domestically, while also adding billions of dollars to the Russian war chest as it wages war on Ukraine.
At one point in early March, oil was trading for $130 US a barrel. That's more than twice what it went for a year ago.
Markets reacted quickly to the news on Thursday, pushing the price of the U.S. oil benchmark West Texas Intermediate down three per cent to $104 US a barrel.
Production is flat despite price spike
Normally, high prices would compel producers to pump more, but that hasn't happened this time. Rafi Tahmazian, a portfolio manager with Toronto-based investment firm Canoe Financial, says that makes sense considering the uncertainty the industry has just gone though amid the pandemic, including a stretch where oil was at one point valued at less than $0 a barrel.
"They're trying to … become bigger entities that manufacture the product cheaper and distribute the money to the shareholder now," he said of most oil companies at the moment. "They're not incentivized to grow anymore."
The U.S. currently pumps out 11.7 million barrels daily, down from 13 million barrels in early 2020. Before the conflict, Russia produced about 10 million barrels of oil per day.
Americans on average use about 21 million barrels of oil daily, with almost half of that devoted to gasoline, according to the U.S. Energy Information Administration.
Antoine Halff with the Centre on Global Energy Policy at Columbia University in New York says while the barrel release is significant, it's hard to tell how much of an impact it will have because so much is still unknown.
"There's still uncertainties about so many aspects of the current crisis," he said in an interview. "There's uncertainties about how long the war in Ukraine will be and what will the supply response be."
In addition to the barrel release, the White House is calling on Congress to impose financial penalties on oil and gas companies that lease public lands but aren't producing energy.
"Too many companies aren't doing their part and are choosing to make extraordinary profits and without making additional investment to help with supply," the White House said. "One CEO even acknowledged that, even if the price goes to $200 a barrel, they're not going to step up production."
Halff says it's clear that over the long term, the White House would rather American oil companies be the ones to bring new barrels to the market, as opposed to the government doing it indefinitely.
"It's an encouragement to producers to produce, also a threat to to for those who choose not to invest.," Halff said.
Commodity strategist Helima Croft with RBC said the move is a continuation of the "muscular stance" the U.S. administration has taken with a suddenly belligerent Moscow.
"It will be important to see whether this release announcement will be an effective shock and awe tactic given that Russian energy losses are likely to climb as the military campaign intensifies and the humanitarian crisis in Europe grows more dire," she said.
With files from the CBC's Meegan Read