Oil prices fell 5% to $107 a barrel, finally dropping from the $110 mark after the Biden administration took steps to control fuel costs by considering a release of 180m barrels of oil from their Strategic Petroleum Reserve.
As part of its effort to decrease fuel prices, the Biden administration is reportedly considering a release of up to 180m barrels of oil from the Strategic Petroleum Reserve (SPR) over the next several months.
The Biden administration confirmed that this will be ‘largest-ever release’ since 1974, dating back to when the reserve was created.
For months, global energy supplies have been tightening as economies began to reopen and pandemic lockdown measures were loosened.
However, the global energy markets have been shaken with oil bans and sanctions imposed on Russia for invading Ukraine, as Russia is the second largest global oil exporter after Saudi Arabia.
Oil bans have led to rising fuel prices across the globe and have become a major political issue in the US as mid-term elections approach in November.
Biden discussed the potential to supply oil to the EU earlier this month, as EU leaders became wary of their economic progress due to high dependence on Russian oil.
The US is the largest oil producer in the world and currently produces 11.7m barrels per day, which is insufficient to meet global demand.
The possible oil release comes ahead of a meeting on Thursday between the Organization of Petroleum Exporting Countries and its allies, including Russia, known as OPEC+, an oil production group.
The US, the UK, and others have already pressed OPEC+ to increase its output, however OPEC+ currently appears unlikely to deviate from its strategy to steadily increase output. Most major energy-producing countries are either at capacity or unwilling to expand output.
Meanwhile, an emergency meeting of the International Energy Agency (IEA) has been scheduled for Friday.
It’s uncertain whether other IEA members, including the United Kingdom, France, Germany, and Japan, will follow the US in releasing oil reserves.
Russ Mould, Investment Director, AJ Bell commented, “You can understand why the US leader felt he had to do something, given the political heat he is getting for rising fuel prices, however a speculated release of one million barrels of oil per day over the coming months has to be seen in the context of total global output of around 100 million barrels per day.”
“Really this is tinkering at the margins. What might put more of a brake on prices is action by OPEC at its meeting later but the extent to which it could increase production, even if it wanted to, is open to question.”
