Raw materials: Biden wants to reduce energy costs and taps oil reserves

The USA is tapping into its strategic oil reserve due to the rapid rise in energy prices. US President Joe Biden has ordered the release of 50 million barrels of oil, the White House announced on Tuesday.

It is a coordinated action with countries like China, India, Japan, South Korea and Great Britain. It is the first time the US has done something like this in coordination with other large countries, said a senior government official. Biden is under pressure in view of the high inflation and falling approval ratings among the population.

Countries around the world are struggling in the wake of the pandemic with consumer demand exceeding supply, according to the White House. According to the American Automobile Association, a gallon of regular gasoline at the pump currently costs a good 3.40 US dollars (around 3 euros), which is significantly more than a year ago. With the release of oil reserves, Biden now wants to lower energy prices. The disparity between demand and supply must be balanced, it said from Washington.

The trigger for the rise in prices is the rapidly increasing demand after the Corona slump with a moderate expansion of supply on the part of large producing countries. Large consumer countries such as the USA and China are particularly interested in low oil prices. For weeks it has been speculated that the US is throwing part of its strategic oil reserve onto the market in order to depress prices. With the release of oil, almost a year before the congressional elections, Biden should also defend himself against criticism that he had not done enough to counter the rising prices.

But there are also growing signs that the decline in oil prices is not being reflected in the pump, according to a US government official. Biden had recently announced that he would like to investigate whether companies in the oil and gas industry would riot. Despite falling costs for companies, Americans paid significantly more at the petrol pumps, according to a letter to the FTC trade commission.

The strategic oil reserve is an emergency supply designed to secure access to oil in the event of natural disasters or national security issues. The reserve is managed by the Ministry of Energy. More than 600 million barrels of oil are currently stored at four locations in the states of Louisiana and Texas. “Today’s decision is in response to the highest oil prices in seven years and aims to ensure adequate supplies in the post-pandemic period,” said the US Department of Energy.

South Korea joins them

South Korea confirmed on Tuesday that the country would join the concerted action. The government has decided to accept the US request and to release oil reserves, the State Department announced in Seoul. Among other things, the need for international cooperation and the alliance with the USA are taken into account.

Details on the amount and the time of release would be determined after consultations with the other countries, it said. It is expected, however, that the amount will be as large as in 2011, when South Korea also tapped oil reserves during the Libya crisis at the request of the IEA. At that time, 3.47 million barrels of oil or 4 percent of the total stocks at that time were released.

The UK also allows companies to voluntarily release some of their oil reserves. “This is a sensible and appropriate step to support the global markets after the pandemic,” said the government on request. If all companies exhausted their options, the result would be 1.5 million barrels of oil. “This has no impact on the British oil reserves, which are well above the 90 days required by the International Energy Agency,” stressed the government.