Oil prices rose in trading on Tuesday despite news that President Biden will release of 50 million barrels of crude oil from the U.S. Strategic Petroleum Reserve fueling concerns about even higher gas prices in the coming months.
In an unprecedented and highly coordinated move, the U.S. will release its reserves together with China, Japan, India, South Korea and the U.K. The news spooked global energy markets as investors grew worried that the OPEC+ might retaliate by further reducing supply.
According to the Administration, the oil may begin moving as early as mid-to-late December.
Crude traded up 2.5% to $78 per barrel as Brent crude moved up more than 3% to over $82 per barrel.
Showdown with OPEC+
The Biden team is releasing oil from the U.S. reserves following OPEC+ countries’ refusal to boost production. While more supply with move prices lower, there is geopolitical risk associated with the maneuver as it could prompt a response by OPEC+. The group could scale back its own production — thereby causing a kind of “showdown” in global energy markets.
It is rare to tap strategic reserves as they are designed to be used in times of real emergencies. For example, the U.S. released 60 million barrels following the unrest that disrupted supplies in Libya in 2011.
Nonetheless, with gas prices up 50% from this time last year and Americans increasingly citing inflation as their biggest economic and political concern, the President has been faced with trying to stem the crisis.
Last week Biden attempted to point the finger at the energy companies themselves, questioning whether they might be illegally manipulating prices. In a letter to the Federal Trade Commission’s Lina Kahn, has asked her to examine the issue.
U.S. Energy Independence in Danger
Prior to Biden assuming the Presidency, the U.S. was considered energy “independent” and, as a result of U.S. drilling, was less reliant on the Middle East. However, with the shutdown of the KeyStone pipeline and other ESG efforts to suppress the traditional oil and natural gas industry, there are growing concerns about the future of energy independence as it begins its transition to a green energy style economy.