Labor Department data shows the price of oil is up 49.6% from October 2020
President Joe Biden announced the release of 50 million barrels of oil from the country’s strategic petroleum reserve in an effort to combat rising expenses for everything from electricity to food. However, if drivers are hoping that the release of the oil barrels will result in rapid price relief at a time when the national average for a gallon of gas is $3.40 — and much more in some regions — some analysts suggest they should keep dreaming.
“It might make a little bit of a difference for drivers as we go into 2022 when the oil actually comes to market,” Andrew Lipow, head of Lipow Oil Associates, a Houston, Texas-based energy sector consultancy business, said. He pointed out that refineries had already purchased their oil supplies for December.
What about cost-cutting opportunities in 2022? “It could be a few cents per gallon for drivers to see at the pump,” Lipow speculated.
According to Seth Blumsack, an energy economics professor at Pennsylvania State University, the White House announcement “may have some sort of short-term influence.” His guess is that the influence will result in a 3 to 5 cent reduction in pump prices in around a month’s time.
“I don’t believe that releasing 50 million barrels is the answer to $4 and $5 gas prices. It’s not enough; what you need is a longer-term supply increase,” said Blumsack, who is also the head of the university’s Center for Energy Law and Policy.
The release, according to Biden, is “a massive effort to control the price of oil, an effort that will span the globe in its reach and, God willing, eventually reach your corner gas station.”
“It will take time, but you should see the price of gas where you fill up your tank drop before long,” Biden added later. On Tuesday, oil futures CL00, 2.63 percent, were trading higher.
According to the White House, countries such as China, India, Japan, and the United Kingdom are also releasing supply. Other countries, particularly those in the Organization of Petroleum Exporting Countries, may adopt a different strategy, according to Blumsack. According to AAA, the national average price for a gallon of gas as of Tuesday was $3.40. Its data reveal a more than $1 gain from a year ago. Californians currently spend the most, on average $4.70 per gallon, while Oklahoma citizens pay the least, on average $2.97 per gallon.
Lipow said that the trade for the 32 million barrels is essentially a debt with interest. Bidders can collect the oil right now, but Lipow says they’ll have to pay it back later in the form of returning the same quantity of oil plus a bonus.
“This portion of the release does not extract any more oil out of the earth; it simply shifts supplies into the near term,” he explained.
According to Lipow, the 18 million barrel sale accelerates sales that were already approved under 2018 deficit reduction legislation. According to Lipow, the market was anticipating the sale of this oil. Accelerating the schedule, on the other hand, might not make a difference if refineries have already finalized their December arrangements.
“If your refrigerator is already stocked with milk, you won’t need to buy any more on December 1,” he explained. “Just because it’s there doesn’t imply the purchasers will be interested; they’ve already made arrangements.”
According to the most current Bureau of Labor Statistics data, the rate of inflation reached a 31-year high in October. According to the EIA, the percentage change in petrol prices from a year ago was 49.6 percent in October.
Going into the holiday season, Americans are increasingly conscious of growing prices, and one recent poll found that prices are now the primary indicator of the economy’s health.
Biden requested the Federal Trade Commission this week to look into whether gas and oil corporations are unfairly raising prices on drivers.
On Twitter TWTR, -0.36 percent, Patrick De Haan, head of petroleum analysis for GasBuddy, said, “Companies absolutely have the wiggle room.” According to him, the release may provide “temporary respite,” but the long-term implications are unknown. On the other hand, he went on to say:
On Tuesday, Biden remarked on the disparity between falling wholesale pricing and pump prices that haven’t “moved a penny.” To put it another way, gas supply firms are paying less and making a lot more money, and they don’t appear to be passing the savings on to customers at the pump.”
Both Lipow and Blumsack agreed that the 50 million oil barrel release isn’t a game changer. They said, however, that it is more than a meaningless political gesture.
The announcement may be aimed at domestic motorists, but Blumsack said it also sends a message to oil-producing countries around the world that “the administration is willing to take unusual action in the face of growing consumer energy prices.”
