Will the move to tap strategic reserve help cut oil prices?

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In a bid to help reduce energy costs, President Joe Biden Tuesday ordered the release of 50 million barrels of oil from America’s strategic reserve.

By this measure, he wants to reduce the increasing burden for millions of Americans embarking on Thanksgiving travel.

The US won’t be alone in this step as it is being done in coordination with several nations. The intention is to provide relief to people who have been burdened with rising oil prices across the world.

Another intention is to curb the rising inflation.

The Strategic Petroleum Reserve holds about 605 million barrels of oil in underground salt caverns in Texas and Louisiana. The idea of holding a reserve started in the 1970s following the Arab oil embargo. Oil was stored safely with the intention of using it during an emergency. However, the oil situation of the country witnessed a remarkable change with the US started exporting more oil than it imported.

In previous cases, the government has released about 1 million barrels per day. Considering the time frame, the influx of 50 million barrels of crude could last about two months. The basic idea behind this decision is that by putting more oil on the market, the experts believe prices will fall.

“The immediate price reaction is not the final judgment on the effectiveness of this effort. It will really be in the months ahead,” Jim Burkhard, vice president at IHS Markit, was quoted as saying by media reports.

Meanwhile, the OPEC oil cartel and its allies will meet soon to discuss their future plan of action to counter the US move. They will decide whether to increase production or to hold back. It was a strategy often adopted by OPEC to support eh prices. Biden had earlier expected the OPEC nations, especially Saudi Arabia, would agree to significantly boost production. But that didn’t happen and there have been only made modest increases.

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