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Historic release of U.S. reserve barrels expected to provide short-term gas price relief

Published: Nov. 23, 2021 at 5:38 PM CST
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LUBBOCK, Texas (KCBD) - A record 50 million barrels of oil will be released from the U.S. Strategic Petroleum Reserve in an effort to lower the cost of oil and gas, according to a Tuesday announcement by President Joe Biden. The Chair of the Department of Petroleum Engineering at Texas Tech University believes the move will cause a short-lived impact on the market.

“It’s all political,” Marshall Watson said. “High prices at either the gas pump or the grocery store is a very negative political statement. So, obviously, the politicians want to manipulate those prices to get them down. The way they can manipulate the gasoline price is by oversupplying the crude oil market.”

According to the U.S. Department of Energy, sales or exchanges of oil from the reserve have never reached this single amount. The reserve, as of November 19, holds 604.5 million barrels of oil in four underground salt caverns on the Texas and Louisiana coast.

“They inject crude oil into [the reserves] for emergency situations, was the primary focus,” Watson said. “If there was ever a U.S. calamity where somehow we were cut off from oil, we would have almost like a tank underground.”

President Biden said other nations, including China, India, and the United Kingdom, would join the U.S. in releasing reserve oil. Watson expects this move to have a minimal impact since the Organization of the Petroleum Exporting Countries (OPEC) has threatened to cut production.

“They’re opening up their storage containers to dump more oil on the market and OPEC is going to retaliate by pulling off that amount. or something that’s meaningful. off the market,” Watson said.

He suspects a possible 20-cent impact on the price of a gallon of gas.

“The U.S. consumes 10 million barrels a day,” Watson said. “Worldwide, we consume 100 million barrels a day. So, it’s really a very short-term fix because we either have to replace it in the future, at some price, hopefully at a lower price, or leave it low.”

Watson said previous administrations have added to the reserve for the opposite effect, to prop up prices.

He told KCBD the market is now reacting to an underestimated demand following the slowdown of the pandemic. He believes the industry would like to see a return to $60 a barrel.

“They really don’t want $100 a barrel than anybody else does,” Watson said. “When you have a swing that’s rapidly increasing, there’s always the mirror of that, which is a rapid fall and it will plummet to prices that production is no longer economic.”

For more on the Strategic Petroleum Reserve, click here.

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