In Historic Move, US Strategic Petroleum Reserve to Release a Record 50M Barrels
President Joe Biden’s administration activated the Strategic Petroleum Reserve (SPR) to give the US Market another 50 million barrels of crude oil. Reportedly, this is the largest utilization of the SPR in history.
RELATED: Schumer: Biden Must Tap US Oil Reserves To Lower Gas Prices
The US Strategic Petroleum Reserve
The US created the Strategic Petroleum Reserve during the 1970s in anticipation of supply issues in the future.
The SPR consists of storing barrels of oil in underground salt caverns that provide safe and cost-effective storage. In fact, a typical SPR cave measures 200 feet in diameter and a depth of 2,500 feet. Each can hold up to 10 million barrels of oil.
The United States currently operates four major oil fields, with all four situated near the Gulf of Mexico. Combined, the total crude oil storage capacity is 714 million barrels. According to recent data, the current SPR inventory is 604 million barrels.
US Government Previously Released Oil from Strategic Petroleum Reserve
True to its name, the SPR helped the US Government release crude oil from time to time. However, the SPR usually releases oil to help resolve supply disruptions.
These disruptions usually happen after natural disasters like hurricanes. The SPR also goes into action when oil shipments bound for the US experience delays in the passage.
However, the situation involving the record withdrawal is totally different. The COVID-19 pandemic forced the majority to stay home indoors.
With travel and transportation restricted to essentials, demand for oil declined massively. As a result, oil producers such as the Organization of Petroleum Exporting Countries (OPEC) slowed down production.
However, when the situation improved and travel resumed, oil-producing countries took their time to resume normal production. OPEC said that the uncertainty posed by COVID is keeping them from going back to full scale immediately.
Demand Skyrockets With Limited Oil Supply
As a result, demand for oil worldwide skyrocketed. As demand rises, the price of oil spiked as well. Last year, the average price of gasoline hovered at $2.10 per gallon. Now, it’s $3.40. Middle-class Americans and everyday commuters felt the hit the most.
The Department of Energy hopes that the infusion of 50 million barrels of crude from the Strategic Petroleum Reserve can help bring relief to rising oil prices.
However, Americans will have to wait a bit more to feel the effect. The released oil from the SPR usually takes 13 days to reach the market.
FTC To Investigate Rise in Fuel Prices
In addition, Biden asked the Federal Trade Commission to investigate allegations that gas and oil players artificially pushed natural gas prices to rise.
Also, the government will now ask again that oil-producing countries increase crude oil production. However, these countries remain reluctant as they anticipate an oil surplus next year.
After the US, the United Kingdom, China, Japan, India, South Korea, and others will work together to use strategic reserves. They hope to increase their own supplies of crude oil while lowering the prices.
Watch Bloomberg’s Market and Finance video reporting that the US will release 50 million barrels of oil from reserve:
What do you think of the decision to release 50 million barrels of crude into the US market? Do you think the Strategic Petroleum Reserve is following its mandate by doing so?
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