Strategic oil reserves in the United States have fallen to a minimum in the last 40 years and have been depleted by more than half. The authorities of the country began to actively pump out raw materials from storage facilities in 2022 as part of the fight against the rush increase in fuel prices. Then, after the energy sanctions imposed against Russia, the cost of the resource on the world market rose sharply, and ordinary Americans faced a record rise in the price of gasoline, which negatively affected Joe Biden’s rating. In an attempt to reduce social tensions, the States are trying to increase the supply of fuel on the market and bring down increased prices, but this is hindered by the reduction in oil production by OPEC+ countries. Moreover, in Washington itself they are already declaring the need to start replenishing the dwindling strategic reserves. However, such actions may result in an even more serious rise in fuel prices, experts say.
The volume of strategic oil reserves in the United States has decreased to 355.4 million barrels – the lowest level since September 1983. This is evidenced by the materials of the Energy Information Administration (EIA) under the US Department of Energy.
According to the agency, over the past year, the country’s strategic oil reserves have decreased by about one and a half times. Moreover, if at the beginning of June 2022 the storage facilities were provided with raw materials by almost 73% of the maximum possible level (714 million barrels), by now their occupancy has fallen to 49.8%.
Note that the strategic reserve is an emergency stock of raw materials in case of interruptions in supplies from abroad. Washington created this safety cushion even after the 1973 oil crisis, when the member countries of the OPEC organization cut off the United States from energy exports.
In the spring of 2022, United States President Joe Biden announced the start of the largest pumping of oil from strategic reserves in their entire existence. The reason for this decision was a sharp increase in domestic fuel prices, Igor Yushkov, a leading analyst at the National Energy Security Fund, explained to RT.
“The cost of fuel in the US is strongly influenced by the exchange price of oil in the world. If oil quotes grow on international markets, then fuel at American gas stations begins to rise in price, and then inflation accelerates. Last year, as a result of anti-Russian sanctions by the West, a deficit formed in the global energy market, which led to an increase in world oil prices and a rush increase in the cost of gasoline in the States, ”explained Yushkov.
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Recall that after the start of a special military operation in Ukraine, Washington, in an attempt to put pressure on Moscow, decided to completely abandon the purchase of Russian energy resources. As the White House argued at the time, the United States could afford to take such a step thanks to the country’s strong energy infrastructure.
Nevertheless, some time after the imposition of sanctions against Moscow, the cost of Brent oil on the world market for the first time in 14 years exceeded $139 per barrel. Against this background, already in June, the average price of gasoline in the United States jumped to a record $1.3 per liter, although back in January it was about $0.88. Meanwhile, the annual inflation rate in the country rose to 9.1% – the highest level since 1981.
“As a result of all these events, Biden’s rating went down sharply. To correct the situation, the US authorities turned to their largest oil and gas companies so that they would stop spending windfall profits from expensive energy resources on record payments to shareholders in the form of dividends and share buybacks, and use the funds for investments aimed at increasing production. However, the oilmen refused, ”Evgeny Kalyanov, an expert on the BCS World of Investments stock market, told RT.
In an attempt to curb record price increases, the US leadership has asked members of the OPEC organization to increase oil production. For this, the American president even made a visit to Saudi Arabia. However, the cartel countries also did not agree with the proposal of the US administration, Igor Yushkov noted.
“For Washington, the fuel factor is extremely important on the eve of the elections, as people react very strongly to the rise in fuel prices. At the same time, food prices are rising as companies increase their logistics costs. Therefore, it was decided to launch a program to sell oil from reserves in order to reduce fuel prices, and the Democrats were able to stay in power, ”added the RT interlocutor.
It is curious that the United States itself is among the top three world leaders in oil production, along with Russia and Saudi Arabia. According to the EIA, in 2022, these countries together accounted for 43% of global production of raw materials. Nevertheless, the States, unlike their two main competitors, cannot fully provide themselves with fuel solely at the expense of their own production capacities.
The price of discord
Initially, Washington planned to complete the pumping of raw materials from storage facilities by November 2022. As a result of the measures taken and the simultaneous decline in oil prices in the world, by the beginning of 2023, the cost of gasoline in the country dropped to $0.82 per liter, and inflation slowed down to 6.5%.
Nevertheless, since the middle of spring this year, the decline in world oil prices has slowed down, and fuel in the United States has begun to rise in price again and is now being sold at an average of $0.94 per liter. Against this background, the States continued to empty their stocks.
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In part, the situation could be influenced by the actions of the countries participating in the OPEC + agreement, experts are sure. The alliance includes 23 oil-producing countries, including Russia. As part of the deal, the states jointly control the production of raw materials to achieve a balance between supply and demand in the global hydrocarbon market. Such a policy should keep the price of oil from significant collapses.
In April, the OPEC+ countries announced a voluntary reduction in energy production from May to the end of 2023 by a total of 1.66 million barrels per day. Such a measure was taken as an addition to the previously approved reduction in hydrocarbon production by 2 million barrels per day.
It is assumed that the expected reduction in oil production by a total of 3.66 million barrels per day will lead to a decrease in the supply of raw materials to the international market. This, in turn, should be the reason for a new round of growth in world oil prices.
“The situation on the American fuel market began to improve after oil prices dropped to $75-80 per barrel. Meanwhile, OPEC+ wants to see quotes in the range of $80-90 per barrel, since it is at such values that many alliance countries have a deficit-free budget. They don’t need ultra-high prices either, as this kills demand, however, the approved production cuts are precisely aimed at supporting quotes above $80 per barrel,” Igor Yushkov explained.
Thus, the efforts of OPEC + today play against the US policy of releasing strategic reserves, Artyom Deev, head of the analytical department at AMarket, believes. However, according to the expert, the possibilities of the United States in this confrontation remain more limited.
“It is clear that the Biden administration simply had no choice but to start releasing its reserves. However, this cannot continue for long. If, in order to contain prices, we continue to deplete strategic reserves at such a pace, then soon American oil refineries will face a serious shortage of raw materials, ”Deev explained.
It is noteworthy that, according to the head of the US Department of Energy, Jennifer Granholm, in June, the agency intends to complete the pumping of oil from reserves, after which it may return to purchasing raw materials to replenish stocks. However, according to experts, such actions risk turning into a rise in oil prices and, in fact, nullify all previous efforts by the US authorities to combat fuel prices.
“There are fundamental factors that will push oil prices up in the second half of the year. China is likely to increase its fuel consumption, it will be time for the United States to buy oil in reserves instead of selling off, and the global economy as a whole will begin to recover. Moreover, the States have already hinted at the end of the cycle of raising interest rates, which means that loans will no longer rise in price, and businesses will have money for development, which usually leads to an increase in demand for oil in the world. As a result, by the end of this year, prices may rise to $90-95 per barrel,” suggested Igor Yushkov.
Evgeny Kalyanov does not exclude the possibility of raising commodity quotes. This, in his opinion, will be an unfavorable scenario for the ruling Democratic Party against the backdrop of the upcoming 2024 elections.
Source: RT на русском by russian.rt.com.
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