When might the release from the US strategic oil reserve affect gas prices?


The White House announcement Tuesday that the U.S is taking the rare step of releasing oil from the nation’s strategic reserve in an attempt to lower gas prices comes as inflation-battered Americans are feeling the pinch at the pump ahead of Thanksgiving travel.

While the news could bring relief of five to 15 cents per gallon in the coming days and weeks, industry experts told ABC News, they remain skeptical about whether the move will ease longer-term pressures in the oil market and concerned over how oil producers could punitively respond.

The announcement that the U.S. will disperse 50 million barrels of crude oil from the Strategic Petroleum Reserve — a complex of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts — comes as gas prices hover near a seven-year-high for this time of year, largely due to supply-demand imbalances wrought by the pandemic. The White House is taking action, meanwhile, amid soaring gas prices seen as hurting President Joe Biden’s approval ratings.

“It’s very much political,” Patrick DeHaan, head of petroleum analysis at the fuel price-tracking site GasBuddy, told ABC News of the release. “We’ve never used the Strategic Petroleum Reserve merely to to bring prices down.”

The 50 million barrels of oil the U.S. plans to release represents about one-twelfth of the total in the Strategic Petroleum Reserve. Historically, the U.S. has tapped into this reserve in response to immediate disruptions in oil supply, like hurricanes.

“The SPR has historically been there as a strategic use in case of disruption,” DeHaan added. “It presents a bit of a slippery slope that now it’s going to be used politically, to improve a candidate’s reelectability or potential.”

“That’s why Biden feels so much pressure, Americans are feeling pressure, gas prices are at their highest they’ve been this time of year in seven years,” he said. “But it also puts the nation at further risk in case OPEC decides it wants to cut oil production or, in fact, the increase from the SPR could draw OPEC’s ire and cause them to lower the restoration of oil production.”

A senior administration official, citing a low global supply of oil that is contributing to driving up fuel costs, said the decision was made to ease costs on everyday American consumers as pressures between demand and the easing of the pandemic create unique conditions.

As the global economy recovers from the COVID-19 shock, oil demand is surging and more travelers are hitting the road and taking flights, causing demand for gas — and prices — to rise at a rapid clip. At the same time, the supply and production of oil has not kept up with increased demand. OPEC+, a conglomerate of the world’s biggest oil producers, has resisted repeated calls by the White House to boost global production.

“At the end of the day this is a short-term Band-Aid,” said Jeff Kilburg, the chief investment officer at Sanctuary Wealth, told ABC News.

He added crude oil prices have come down in recent weeks, in part in anticipation of an announcement that the U.S. and other countries would tap into oil reserves. But after the White House formalized the news Tuesday, crude futures actually traded higher.

“This was a surprise that everyone saw coming,” Kilburg said.

Longer-term price drops are more dependent on boosting global oil production, he added.

How and when will this affect gas prices?

Typically, prices at the pump lag crude oil prices by a couple of weeks, but GasBuddy’s DeHaan said speculation that this announcement was coming had already been driving crude oil prices down over the past week.

DeHaan said he expects this announcement to bring down gas prices by some five to 15 cents per gallon depending on the state, and most Americans should start seeing this at the pump “in the next couple of days” or weeks at most.

As of Tuesday, the national average gas price in the U.S. was $3.403 per gallon for regular gas, according to American Automobile Association data. A week ago, that figure was $3.411, a month ago it was $3.382, and a year ago — as the pandemic raged — it was $2.109.

This relief Americans will see as a result of this announcement, however, will likely be “underwhelming,” according to DeHaan, and not a long-term solution.

“I’m not sure that national [gas price] average will drop as much as what Biden had intended or hoped for,” he said.

DeHaan also said there was some “accounting maneuvers” being used in that of the 50 million barrels released, 32 million barrels are going to be “exchanged.”

“That is, oil companies can take delivery now and it’s like an ‘IOU,’ they have to replenish them later,” he said. “Which is not necessarily an outright gain to supply because they have to replenish that.”

The biggest threat of this announcement is that OPEC+ has already hinted at the fact that it may limit future production increases to offset the U.S. and other countries strategic reserve releases, DeHaan added.

“Prior to this SPR announcement, I would have expected that OPEC increases in production that they’ve been doing monthly would have brought meaningful relief by early- to mid-2022,” DeHaan said. “But now, I think that might be threatened if OPEC responds.”



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