In a State of the Union address that made numerous references to the auto industry, President Joe Biden on Tuesday night made at least one announcement that could directly and immediately impact American motorists: confirming the U.S. and its allies will release 60 million barrels of oil from their strategic reserves.
Half that amount will come from the U.S. Strategic Petroleum Reserves. It marks the second time that Biden has tapped the reserves attempting to help hold down spiraling fuel prices. The cost of fueling up has been on the rise for months, with prices surging in the wake of the Russian attack on Ukraine. According to the AAA, the average cost of a gallon of self-serve no-lead reached $3.65 ahead of the president’s announcement Tuesday night.
The announcement came early on in the president’s more than one-hour address. After focusing on what is happening in the Ukraine, Biden turned to topics domestic, including the run-up in fuel prices. To address the situation, a coalition of countries, including Germany and the Netherlands in Europe, as well as Japan and South Korea, have agreed to release strategic oil supplies.
The U.S. will supply half of the total amount “and we stand ready to release more, if necessary,” said Biden.
Blunting the impact
The International Energy Agency described the international move as a way to send a “strong message to global oil markets that there will be no shortfall” of petroleum supplies as a result of the war in Ukraine, as well as the subsequent sanctions against Russia.
The former center of the Soviet Union is one of the world’s largest producers of petroleum and there has been concern that its exports of oil and other strategic raw materials could be disrupted. Other major Russian exports include aluminum, palladium and nickel, all are critical to automotive manufacturing.
Prices of palladium, for example, have more than doubled in recent months, with a big surge touched off by the Ukraine invasion. One significant use for the metal is in catalytic converters. This could result in several hundred dollars per vehicle in additional costs.
“President Biden was clear from the beginning that all tools are on the table to protect American businesses and consumers, including from rising prices at the pump,” the White House said in a statement following the State of the Union address.
Will it help?
Biden is by no means the first president to release strategic reserves of petroleum. His first such move had only a marginal impact on rising oil prices, however.
The question is whether Tuesday’s announcement will do any more.
The initial indication is that the upward trend is continuing. As of 9 a.m. EST on Wednesday, West Texas Intermediate Crude, a major benchmark, was up about 6.5%, to around $110 a barrel compared to a day ago. Brent Crude, another closely watched index, posted a similar increase, at more than $111 a barrel.
“The bottom line is this is not enough to cool off the market. It’s a bit of a band-aid solution,” Michael Tran, managing director of global energy strategy at RBC Capital Markets, told CNN.
There was support for the release, nonetheless, from within the oil industry.
“I do think a coordinated response by multiple countries could help in the near term,” Chevron CEO Mike Wirth said during a briefing with reporters. “Certainly, we’ve seen markets on edge with concern about supply and supply reliability.”
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