Treasury Department Estimates that Strategic Petroleum Reserve Releases by President Biden and International Partners Reduced the Price of Gasoline by up to 40 Cents Per Gallon
Today, the Biden Administration announced that it is releasing the next Notice of Sale to supply additional barrels of crude oil from the Strategic Petroleum Reserve (SPR) onto the global market, building on the more than 125 million barrels of oil that have already been sold. A new analysis from the Department of the Treasury estimates that these releases, along with coordinated releases from international partners, have reduced gasoline prices by up to about 40 cents per gallon compared to what they would have been absent these drawdowns.
The Administration is also announcing steps to repurchase oil for the SPR in future years, likely after FY2023, to help stabilize the market and encourage near-term supply. These actions will enable the Administration to continue the work of shoring up supply and bringing prices down.
Continuing Unprecedented SPR Releases
Since the President authorized the historic release of one million barrels per day from the SPR earlier this spring, the Department of Energy has already sold more than 125 million barrels into the market, including nearly 70 million barrels that have already been delivered to purchasers and additional barrels planned to be delivered to customers in the weeks and months to come.
The President’s historic action is in addition to agreements with International Energy Agency member countries for collective action to address the market disruption caused by Russia’s invasion of Ukraine. The President and his team engaged in round-the-clock diplomacy resulting in the release of 240 million barrels from the United States as well as allies and partners globally to meet this moment.
With these releases, the President has executed a drawdown of unprecedented size and scope to respond to the energy market disruptions posed by Russia’s invasion, and his actions are having an impact. It is, as one leading analyst noted at the time of announcement, “hard to overstate the scale of this intervention.” And the Department of Energy is delivering.
There is no precedent for this level of drawdown, and one major bank estimated in March that the maximum drawdown capacity of the SPR was only 500,000 barrels per day. Nonetheless, the SPR is executing at a speed that is about twice that level.
And those actions are helping mitigate the Putin price hike. In fact, the Department of the Treasury estimates that as a result of these drawdowns both domestically and internationally, the price at the pump for Americans is up to about 40 cents per gallon lower than it otherwise would have been.
Today, as part of the President’s historic release, the Department of Energy is issuing a notice to sell 20 million barrels from the Reserve. This is the fifth sale that the President has authorized to shore up crude oil supplies in response to Putin’s war in Ukraine by releasing one million barrels per day into the market. The Administration expects to continue to deliver barrels for several more months.
Using Repurchases to Promote Stability and Encourage Supply
The Administration is also moving forward with a proposal to allow fixed-price forward purchases of crude oil to replenish the SPR and encourage short-term production. Relative to conventional purchase contracts that expose producers to volatile crude prices, the fixed-price contracts can give producers the assurance to make investments today, knowing that the price they receive when they sell to the SPR will be locked in place, providing them with some protection against downward movements in the market. This proposal, if finalized as proposed, would encourage near-term production, promote market stability, and put the federal government in a better position to respond to future market volatility.
The Department of Energy is proposing rulemaking this week that would allow for these purchases. The new rule, if finalized as proposed, would enable the Department to enter into purchase contracts for future delivery at a fixed price. Under current regulations, the Department can enter into contracts for future delivery, but the price paid reflects prices at the time that product is delivered. By instead allowing for the price to be fixed at the time the transaction is executed between the parties, this regulatory change would provide greater certainty to producers regarding the revenues they could expect to generate if they produce more crude oil in the short-term, knowing that the Department has contracted to purchase these barrels at a previously agreed-upon price to replenish reserves.
Importantly, the actual delivery of these volumes back to the Reserve will not take place until well into the future, likely after FY 2023. This means that the repurchase agreements will encourage greater near-term investment in supply but will not raise demand for barrels now or in the near-future.
Update on Gasoline Prices
Gasoline prices have fallen for six straight weeks, and are nearly 70 cents below where they were last month. According to an industry analyst, more than 40,000 stations across the United States are selling gasoline for less than $3.99 per gallon. As a result of this price decline, Americans are collectively saving hundreds of millions of dollars on gasoline every day compared with prices last month, and prices continue to fall.
While energy markets are unpredictable and subject to further disruption from Putin’s war in Ukraine, the Administration will continue to use every lever available to address supply disruptions, bring prices down and provide relief for Americans at the pump.