President Joe Biden will announce the single largest planned drawdown from the nation's Strategic Petroleum Reserve on Thursday in a move designed to blunt record gasoline prices.
The White House previewed details of the approximately 180 million-barrel release before Biden is scheduled to make the announcement Thursday afternoon, calling it a strategy to contain "Putin's price hike." The plan involves the release of 1 million barrels per day, on average, for the next six months.
This is the third time the White House has tapped the SPR since Biden took office, and all three actions were initiated in the last four months. The administration announced a 50 million-barrel release in November and another 30 million-barrel release on March 1.
BIDEN TO USE WARTIME POWERS TO PRODUCE MINERALS NEEDED FOR GREEN ENERGY
Here's how it will work:
Where is the oil?
The reserves currently contain 568 million barrels and are maintained at four different sites along the Gulf Coast: Bryan Mound and Big Hill in Texas and West Hackberry and Bayou Choctaw in Louisiana.
How will the government distribute the oil?
The Department of Energy, which maintains the SPR, has the authority to offer barrels to interested companies on an exchange or to conduct sales.
The November SPR release involved both mechanisms, but all of the barrels released under this announcement will be sold.
As for delivery, a senior administration official told reporters a "sizable portion" of the 1 million barrels per day will be carried via pipeline.
Who can acquire the barrels?
Entities such as commodity trading firms, refiners, and oil firms can all bid on and take delivery of the oil.
For the most recent SPR release, all 30 million barrels were put up for sale. Thirteen companies bid on the barrels, and seven different companies, including Marathon Petroleum Supply and Trading and Chevron USA, were awarded varying shares of the total barrel supply.
What does the government do with revenue from sales?
Some SPR sales are mandated by Congress, and authorizing legislation directs where revenues from the sales go.
For example, 18 million barrels of the 50 million announced in November were sold under authorization from the Bipartisan Budget Act of 2018, and that revenue was directed to a specific government fund.
For this newest action, a senior administration official said all of the funds earned by this new sale will be used to restock the reserve. The official said that effort would occur when oil prices come down.
How does this compare to other SPR releases?
One million barrels per day for six months adds up to about 180 million today, making it the largest single action to draw from the United States's reserves. It overshadows the 50 million-barrel announcement from November, which until Thursday constituted the largest drawdown.
Previous administrations have authorized exchanges and sales of SPR barrels during periods of supply disruptions, including for emergencies.
Following Hurricane Katrina, 30 million barrels of crude oil were sold from the SPR, and in 2011, the Obama administration authorized a sale of more than 30 million barrels in 2011 due to Libya's civil war.
Some Democrats have urged Biden to lean more heavily on the SPR in recent months as prices soared, while some Republicans have criticized Biden's use of the SPR, especially the November sale and exchange, arguing that high prices alone do not merit a drawdown.
How big is the release, relative to demand?
The release of a million barrels a day represents about 5% of domestic demand.
The Energy Information Administration tracks a metric called "weekly petroleum product supplied," which approximates the consumption of oil-based products across the United States — not all of which is refined into gasoline.
The total averaged about 19.9 million barrels per day for the week ending March 25. Before last week, it has stood above 20 million BPD steadily since early November and reached above 23 million BPD for one week in December.
Meanwhile, global demand is expected to average about 100 million BPD over the year, according to the Energy Information Agency. So, the release represents about 1% of total global demand.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Will it bring down prices?
There is a consensus view that more oil on the market necessarily means prices should be driven downward.
The market weighs many factors in pricing oil, and anticipation of 180 million barrels is one of them. Oil prices have already fallen since news broke early Thursday that Biden would direct the SPR to be opened again. Brent Crude fell by 4.59% to $108 a barrel as of the early afternoon, while futures for U.S.-based West Texas Intermediate fell by 3.82%, down to $104 a barrel.
However, because there are so many nations contributing oil to the global market, other things such as sanctions or outages could offset the price reduction associated with the SPR release, making difficult the estimation of how much this action will affect gasoline prices.