U.S. Joins with China, Other Nations in Tapping Oil Reserves

U.S. Joins with China, Other Nations in Tapping Oil Reserves

Timothy Puko, Alex Leary - Yesterday 8:08 PM

WASHINGTON—The U.S. and five other countries including China will tap their national strategic petroleum reserves in an attempt to bring down gasoline prices that have become a sore spot with motorists and a big contributor to inflation, the White House said.

Crude prices for future delivery ticked upward after the announcement early Tuesday, partly reversing a recent fall in these commodity markets. Oil traders for weeks had anticipated action from the White House as President Biden’s advisers grappled with how to address rising prices for gasoline, groceries and other consumer products that have put its legislative agenda at risk.

“The president stands ready to take additional action, if needed, and is prepared to use his full authorities working in coordination with the rest of the world to maintain adequate supply as we exit the pandemic,” the White House said.

Analysts have said crude futures may continue to rise if traders believe the White House’s response will have limited effect. Any trickle-down effect that eventually lowers retail prices may be short-lived, they said, as demand is expected to keep rising into next year as the global economy continues its recovery from the Covid-19 pandemic.

Gas and heating-oil prices rose to seven-year highs last month, but until Tuesday had spent weeks ticking down as traders anticipated a White House response.

“Given that the news has been rumored for several weeks, the market reaction may be quite muted,” said Bjornar Tonhaugen, head of oil-market research at consulting firm Rystad Energy. “For drivers wondering if gasoline prices will get lower…the reality is that this may not happen at all, or only with a significant lag time.”

The Biden administration said in total it would put 50 million barrels of oil from U.S. government stockpiles onto world markets in the coming weeks. Along with China, the White House said other countries participating in the release are India, Japan, South Korea and the U.K.—a group that includes the world’s four biggest oil-consuming nations.

China, like the U.S., has for weeks now made an aggressive effort to bring down energy prices to deal with its own inflation. And the move is the latest of several signs of cooperation between the two world powers seeking to tamp down geopolitical tensions.

At the Glasgow climate summit earlier this month, the U.S. and China agreed to cooperate on accelerating a transition to cleaner energy, and President Biden held a virtual summit with Chinese President Xi Jinping last week.

In total, the six countries are likely to put roughly 65 million to 70 million barrels from government stockpiles onto world markets, according to a tally by RBC Capital Markets.

That figure is only a little more than half of the world’s daily consumption, which the Energy Department estimates will surpass 100 million barrels a day in the final three months of 2021. That total would put world consumption nearly 5% higher than it was a year ago as the recovery from the pandemic has steadily driven consumption higher.

Robbie Fraser, global analytics and research manager at Schneider Electric, an energy consultant and equipment supplier, called it “a sort of temporary challenge” to the Organization of the Petroleum Exporting Countries and its long-held command of oil markets.

Video: Biden administration to tap oil reserves in bid to tamp down rising gas prices (MSNBC)

In recent months, the White House had urged OPEC and its allies to increase output more than they had initially planned, contending that there wasn’t enough oil to meet demand as the global economy rebounds from the Covid-19 pandemic.

In an early November meeting, OPEC and its allied Russia-led producers decided to defy that pressure, leaving White House officials to home in on tapping the reserve as their next best option.

Sen. John Barrasso (R., Wyo.) said that Tuesday’s release “will not fix the problem” and that the Biden administration needs to focus instead on boosting domestic production.

“Begging OPEC and Russia to increase production and now using the Strategic Petroleum Reserve are desperate attempts to address a Biden-caused disaster. They’re not substitutes for American energy production,” Mr. Barrasso said.

Senate Majority Leader Chuck Schumer (D., N.Y.) took the opposite view, calling the release “good news for American families.”

“Tapping the SPR will provide much-needed temporary relief at the pump and will signal to OPEC that they cannot recklessly manipulate supply to artificially inflate gas prices,” Mr. Schumer said.

Mr. Schumer said the long-term solution is “to eliminate our dependence on fossil fuels and create a robust green energy economy.”

While U.S. reserve releases have become more common in recent years, this would be the largest ever and the first release coordinated with other countries in a decade, according to the Energy Department. Senior administration officials say the size is intended to help the recovery from an unprecedented pandemic.

Rising gasoline prices across the U.S. have raised costs for consumers and added to economic and political troubles facing Mr. Biden and Democrats.

While the pandemic recovery continues, supply-chain constraints have helped drive inflation to a three-decade high, resulting in more expensive groceries, cars and a range of other goods. The White House has put more emphasis on the problem, with Mr. Biden more readily acknowledging the squeeze on families. The president is to address economic issues in a speech later Tuesday.

A CBS News poll released on Sunday showed Mr. Biden’s public approval rating is at 44%, his lowest since taking office. Only 30% of Americans said the economy is good, the poll showed, down from 37% in October and 45% in July. While 53% of Americans approve of Mr. Biden’s handling of Covid-19 vaccine distribution, only 39% approve of his handling of the economy and 33% of inflation, the poll showed.

Pocketbook issues motivate voters and Democrats are entering next year’s midterm elections—which are typically tough for the party that controls the White House—with a narrow majority in the House and a 50-50 split in the Senate.

Administration officials didn’t specify when they expect consumers to see lower prices at the pump, though they noted there is usually a lag between increased oil supplies and when retail prices fall. “We expect the industry to be passing through these savings to consumers as quickly as possible,” one official said.

U.S. benchmark crude recently traded up 1.4%, at $77.79.

Global consumption is likely to average 100 million barrels a day in the final three months of the year, up 4.9% from the same period a year ago, according to Energy Department figures.

The last globally coordinated release came in 2011 when the U.S. and 27 other countries agreed to release 60 million barrels to replace some of 140 million in output lost as a result of three months of conflict in what would become Libya’s civil war.

Write to Timothy Puko at tim.puko@wsj.com and Alex Leary at alex.leary@wsj.com