The United States is dropping ballast on its oil stocks. The White House announced Thursday that it was ready to draw an average of 1 million barrels per day from its strategic reserves for six months to reduce tensions on prices. A “historic” volume: 180 million barrels represent almost a third of its current reserves (568 million). The price of WTI, the benchmark for American crude, fell more than 5% before the official confirmation on Thursday by Joe Biden.
For months, the White House has been trying to lower the pressure on oil supply, which is driving up inflation (+7.9% over one year). Action on the strategic reserves is, in this respect, the easiest instrument to activate. This is the third time that the administration has used it: last November, Joe Biden announced the release of 50 million American barrels, in coordination with other countries.
At the beginning of March, the member countries of the International Energy Agency then announced, in the wake of the Russian invasion of Ukraine, the possibility of releasing 60 million barrels, half of which by the United States. And the action announced Thursday could be matched by partner countries, the White House said.
Profitability before volumes
The measure illustrates the difficulties of the United States to trigger an increase in oil production. OPEC +, which brings together the member countries of the cartel and Russia, maintained its position of firmness on Thursday, not opening the floodgates beyond what it had already planned (i.e. 400,000 barrels more per day in May ). During the major energy conference in Houston (Texas) at the beginning of March, the Secretary General of OPEC insisted on the alliance’s desire not to “politicize” oil.
American producers, for their part, have started to drill again, at some 11.6 million barrels per day, but many favor short-term profitability over volumes, so as not to fall back into the traps of past cycles. They should not return to their record level of production (13 million barrels per day at the end of 2019) until the end of this year, according to the latest forecasts from Rystad Energy. The White House thus castigates the “too many companies which do not do their part of the work and choose to make extraordinary profits”.
Even before the Russian invasion of Ukraine, the US Energy Agency (EIA) estimated that global consumption of oil and liquid fuels would average 100.6 million barrels per day this year, an increase of 3 .1 million barrels compared to last year.
The American president is in an uncomfortable position: beyond the management of inflation, he has also made his mandate a marker for the energy transition, incompatible with a call to drill more gas and oil. A constraint in which the opposition has also engulfed itself to criticize the Biden administration.
Initially reluctant to decree an embargo against Russian oil for fear of fueling the rise in prices, Joe Biden finally resolved to do so at the beginning of March. To reinforce American “independence” in terms of energy, he is also asking Congress to adopt his reform plan in favor of the climate, which has been deadlocked for several months.
Once the surprise of the announcement on strategic reserves has passed, the impact on prices could remain short-lived. “It is difficult to combat a potentially unlimited shortfall in oil production by providing a finite supply,” note UniCredit analysts. And “once the reserves fall below a certain threshold, the market may fear that they are insufficient to fight against a new shock”, which makes prices go up.