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Economic news from March 31, 2022

Economic news from March 31, 2022

Under mounting pressure to bring down high energy prices, President Biden announced on Thursday that the United States would release up to 180 million barrels of oil from a strategic reserve to counter the economic impact of The Russian invasion of Ukraine.

With the midterm elections just months away, gasoline prices have risen nearly $1.50 a gallon over the past year, undermining consumer confidence. And the cost of dieselthe fuel used by most farmers and shippers, soared even faster, threatening to drive up already high inflation on all kinds of goods and services.

“I know how much it hurts,” Biden said Thursday when announcing the plan. “As you’ve heard me say before, I grew up in a family like many of you where the price of a gallon of gas went up, it was a discussion at the kitchen table.”

Mr Biden has few tools to control commodity prices that are set in global markets, so he is turning to the Strategic Petroleum Reserve, ordering the biggest release since this emergency stockpile was created at the start. 1970s. But this decision will most likely have a modest impact because it cannot offset all the oil, diesel and other fuels that Russia used to sell to the world, but is no longer able to sell.

“Our prices are going up because of Putin’s action,” Biden added, referring to Russian President Vladimir V. Putin. “There is not enough supply. And the bottom line is that if we want lower gas prices, we need to have more oil supply right now. »

Mr. Biden’s plan, to release one million barrels of oil a day for 180 days, would represent about 5% of US demand and 1% of global demand. To put that into context, Russian oil exports have fallen by around three million barrels a day. The benchmark oil price in the United States fell about 6% on Thursday.

The administration’s announcement came as Russia sent mixed signals about its goals for the war in Ukraine, which is now in its sixth week. Despite Kremlin claims it was withdrawing from the outskirts of the capital Kyiv, fighting continued in that region on Thursday, and Western officials said they had seen little evidence of a withdrawal Russian.

“Russia is keeping pressure on Kyiv and other cities, so we can expect further offensive actions, bringing even more suffering,” NATO Secretary General Jens Stoltenberg told a conference. Press.

Russian officials also said they would grant a respite for better humanitarian access to the devastated southeast port of Mariupol, once home to 400,000 people, which has become a symbol of Russia’s indiscriminate destruction tactics on the battlefield. Previous agreements providing for pauses in fighting around Mariupol have repeatedly been broken.

Largely due to the ongoing war, energy experts expect oil prices to remain high for some time without major interventions like the release of US reserves.

The oil industry’s reaction to Mr Biden’s announcement has been mixed. The reserve was mainly used to increase oil supply during wars, foreign threats to energy supply or natural disasters. Small reserve releases by the Biden administration beginning late last year have had little impact on the prices drivers and businesses pay for fuel.

“It will bring the price of oil down a bit and encourage more demand,” said Scott Sheffield, chief executive of Pioneer Natural Resources, a major oil company in Texas. “But it’s still a band-aid on a significant supply shortfall.”

The American Petroleum Institute, which represents oil and gas companies, said Mr Biden should encourage domestic oil production by reducing regulations. The reserve “has been put in place to reduce the impact of significant supply chain disruptions,” said group chairman Mike Sommers, “and while today’s release may provide short-term relief term, it is far from a long-term solution to the economic pain Americans are feeling at the pumps.

After dropping to historic lows in the early months of the coronavirus pandemic, oil prices have soared over the past year, reaching their highest levels in nearly a decade.

Oil exploration and production in the United States and elsewhere has plummeted during the pandemic, and still hasn’t fully recovered. US companies, under pressure from investors, have been cautious about spending too much money drilling new wells for fear that prices will fall again. Instead, many paid larger dividends and bought back their shares.

While that calculation might make sense for individual companies, it caused political problems for Democrats who hoped to reduce fossil fuel use to fight climate change. Now, under attack from Republicans for high prices, Mr. Biden and the Democrats are trying to get the oil industry to drill more.

Credit…Tannen Maury/EPA, via Shutterstock

Both sides of the political divide are eyeing November’s congressional elections, when inflation is expected to be a major issue.

Reacting to news of the reserve’s release, a spokesman for Rep. Kevin McCarthy, the Republican House leader, accused the president of “attacking American energy production in order to fulfill his campaign promise to “get rid of fossil fuels”.

Mark Bednar, the spokesman, added: “As a result, the American people are paying the price, because the gas is more than $4 per gallonand we are more dependent on other countries for energy.

But Sen. Joe Manchin III, Democrat of West Virginia, welcomed Biden’s announcement, saying it would “provide much-needed relief while allowing for the simultaneous increase in domestic oil and gas production to fill resources.” Russian energy sources”.

Mr. Biden’s aides are hoping to blunt Republican criticism by taking steps to try to lower prices. In an oil release statement Thursday morning, the White House said Biden was “committed to doing everything in his power to help American families who are paying more out of pocket as a result.”

They are also trying to shift some of the blame for high prices onto oil companies, which the administration says are not producing more power to boost their profits. The administration plans to ask Congress to compel companies to produce oil on more than 12 million acres of federal lands already cleared for extraction or pay fines, a proposal that will likely face an uphill climb. sharply.

Energy experts said the release of reserves would have more punch if other countries, such as China, also sold oil from their stockpiles. The International Energy Agency, an organization of more than 30 countries, will meet on Friday and could recommend further releases from national reserves.

Russian oil exports normally account for more than one in every 10 barrels the world consumes. The United States, Britain and Canada have stopped importing Russian oil, and many oil companies and shippers in Europe have voluntarily stopped buying Russian energy products. This has produced a shortfall so far of about three million barrels per day.

The average price of regular gasoline in the United States is $4.23 per gallon, according to AAA, the automobile club. That’s about the same as a week ago, but up 62 cents per gallon last month.

Oil prices had fallen this week after peace talks between Russia and Ukraine showed early signs of progress. Energy traders also fear demand will plummet as China, the world’s biggest oil importer, imposes shutdowns in Shanghai and other places to deal with coronavirus outbreaks.

“The effect on prices will likely be short-term,” David Goldwyn, who was a senior State Department official in the Obama administration, said of Mr. Biden’s announcement. “But part of the benefit of this release is that it will provide a gateway to new physical supply coming online in the second half of this year from the United States, Canada, Brazil and other countries.”

Some environmentalists have criticized the release of the reserve. “Putting more oil on the market is not the solution to our problem but the perpetuation of our problem,” said Mark Brownstein, senior vice president of the Environmental Defense Fund.

But Meghan L. O’Sullivan, director of the Geopolitics of Energy Project at Harvard’s Kennedy School, said releasing reserves to ease shortages would not jeopardize the transition to clean energy. “What the past month has taught us is that if there is no energy security today, the appetite to take tough steps on the path to transition will evaporate,” he said. she declared.

Liberation is not without risk. Goldman Sachs analysts wrote in a research note that a large spill could cause “congestion” on the Gulf Coast, preventing new oil production from West Texas fields from entering pipelines and storage tanks.

Mr. Biden’s decision could also discourage Saudi Arabia and other producers from increasing supply to reduce prices. OPEC Plus, a group led by Saudi Arabia and including Russia, decided on Thursday to maintain a policy of modest supply increases.

Bob McNally, who was President George W. Bush’s energy adviser, said the statement was “not significant enough to offset the potential loss of Russian oil exports if the conflict and sanctions pressure continues to spread.” “.

The oil market tends to go in cycles, so the release can allow the government to sell high and later buy low, potentially earning billions of dollars for the Treasury. The government will use the money it makes from oil sales to fill the reserve, which in turn could help push prices up again.

While driving up those prices, Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy and former aide to President Barack Obama, said a possible recharge could also “send a signal to shale producers who could encourage them to invest in more production, which can help address potential shortages today.

The US reserve contains nearly 600 million barrels, or about one month’s total US consumption, and can release up to 4.4 million barrels per day. The stockpile was built up after the 1973 energy crisis, when Saudi Arabia and other Arab producers declared an oil embargo.

Megan Specia contributed reporting from Krakow, Poland, and Steven Erlanger from Brussels.