Biden Administration Considers Releasing Million Barrels Of Oil Per Day From Strategic Petroleum Reserve

US President Joe Biden is considering releasing up to 180 million barrels of oil from the nation's strategic petroleum reserve (SPR). As a result of this, oil prices dropped today.

Biden is set to deliver remarks today and he might announce this decision during his address. The intention is to control the rising crude oil prices. This decision will entail releasing nearly million barrels per day from the SPR.

Brent Crude's futures for May dropped by 3.5 per cent to $109.50 per barrel. WTI crude futures for May delivery witnessed a decline too. At the time of writing this article it hovered at around $101.47 per barrel.

Gasoline prices have spiked due to a combination of reasons such as higher than expected demand after the pandemic and Russia's invasion of Ukraine. This has led to fear of inflation across the global economy. Germany is witnessing a 41 year high in inflation and US' Fed recently raised its interest rates to combat inflation.

The main reason why the war in Ukraine is having such a significant impact on energy markets is because Russia is the second highest exporter of oil. Russia's war with Ukraine and west's attempt at economic warfare in reponse obviously runs the risk of disrupting supplies.

However this release is only a bandaid 'solution'. If this release of reserve succeeds in rebalancing the oil market in 2022, trouble will emerge again in 2023.

With the midterm elections looming in US, the goal of this decision is to reduce the pain at the gas pump. Here is the underrated dilemma - lower prices in 2022 will support oil demand which in turn will slow down the growth of US shale production. Slow down in the growth of US shale production is arguably not in US' long term interest.

The OPEC+ on its part is set to hold a meeting as well. They will most likely stick to their policy of slowly increasing production.

US has released oil from its SPR previously in recent months but this will be quite a significant release, Biden is effectively raiding the SPR. Drawing from the SPR so heavily is rather risky. America's inventories are going to be significantly depleted. With summer approaching, which is a time of heavy use in US, the country might need the buffers provided by inventories in a time of supply uncertainty.