Sunday, November 28

What is the strategic oil reserves that Biden wants to withdraw from?

The administration of US President Joe Biden is considering withdrawing from the US strategic oil reserve to push oil prices down in cooperation with major consuming countries such as China and Japan.

Analysts say that such a step may not have a long-term effect in calming the rise in US oil prices, which reached the highest level in 7 years, exceeding $ 85 a barrel in late October, and could allow the release of a quantity of oil reserves in the markets. The Biden administration has guarded against criticism ahead of the 2022 midterm congressional elections that it has done little to address price hikes.

This move, in cooperation with major consumers such as China and Japan, may allow Biden to say that he did not stand idly by after Saudi Arabia and Russia – members of the “OPEC Plus” (OPEC +) bloc – resisted US demands to pump more oil into global markets.

The following are answers to some questions about the strategic reserve.

  • Why did the United States create the Strategic Petroleum Reserve?

The United States began building the Strategic Petroleum Reserve in 1975 after the Arab oil embargo drove up gasoline prices and damaged the American economy, and some presidents resorted to drawing from the reserves to calm oil markets during times of war or when hurricanes caused disruption of oil infrastructure along the coast America on the Gulf of Mexico.

  • How much oil is in the strategic reserve?

The size of the strategic reserve is about 606 million barrels stored in caves in 4 highly guarded sites on the coasts of Louisiana and Texas, and this amount is sufficient to meet American demand for more than a month, and the United States also maintains small quantities of heating fuel and gasoline in the northeast of the country.

  • What other countries have strategic reserves?

Other than the United States, the other 29 members of the International Energy Agency – including Britain, Germany, Japan and Australia – must maintain emergency oil reserves, covering net imports for a period of 90 days.

Japan has one of the largest reserves after China and the United States, and China is an associate member of the International Energy Agency, and is the second largest oil consumer in the world. It built its strategic oil reserves 15 years ago and conducted its first auction to sell quantities of the reserves in September, and India – also affiliated with the International Energy Agency and the third largest importer and consumer of oil – maintains a strategic reserve.

The International Energy Agency says that the total reserves of the governments of the Organization for Economic Cooperation and Development exceeded 1.5 billion barrels last September, and this meets global demand for a period of about 15 days before the Covid-19 pandemic.

The size of the US strategic reserve is about 606 million barrels (Reuters)
  • Can these countries withdraw from their reserves at one time?

US presidents can coordinate the withdrawal from the strategic reserve with similar steps from other IEA members at the same time, and the participation of China and India in the withdrawal from the reserve will be the first time that the United States coordinates the withdrawal process with the participation of these two countries.

  • How does oil from the strategic reserve reach the markets?

Due to its proximity to the major oil refining and petrochemical centers in the United States, it can pump up to 4.4 million barrels per day from the strategic reserve.

The Energy Department says that it can take only 13 days for oil to reach the US market after a presidential decision, and the Department of Energy usually conducts an online auction in which energy companies submit bids to buy oil. Under a swap arrangement, oil companies can take delivery of the crude oil but are required to return it plus interest.

US presidents have authorized the release of emergency sales from the strategic reserve 3 times, the most recent of which was in 2011 during the conflict that erupted in Libya, a member of the Organization of the Petroleum Exporting Countries, and that was preceded by offering quantities during the Gulf War in 1991 and after Hurricane Katrina in 2005, and many exchanges took place, most recently In September, after Hurricane Ida.

  • What is the role of the International Energy Agency in national strategic reserves?

The IEA contributes to coordinating reserve drawdowns in member countries, providing data on stock levels, and performing other roles.

There are 3 ways to maintain strategic reserves that meet the 90-day standard, according to the agency’s website, which are commercial reserves with refiners and reserves with governments and government agencies. Each country has the right to choose the distribution of the required quantity over the three types of reserves.

The agency says that it is possible to take measures to reduce demand or help provide supplies, and these measures may include calls to voluntarily reduce fuel consumption, or to switch from one type of fuel to another, such as switching from oil to gas in electricity generation, or to increase production To quickly tap into the underground stock.

The agency also says that loosening environmental standards could also contribute to more flexibility in supply.

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