The Russia-Ukraine conflict has resulted in a sudden, negatively stirring effect on worldwide fuel prices by sapping the already sprawled stocks. Fuel rates were already increased before the conflict, and the war only sent prices exploding through the roof across the world.
Unlike India, which has a favorable attitude toward Russia, the US and other European countries have been handling the immediate heat of this crisis. To battle these global rates, US President Joe Biden has declared a short-term regulation that will help the US deal with the situation sufficiently in the short-term time. Say, for the next 6 months.
To prevent rising gasoline prices, Joe Biden's government will discharge 180 million kegs of oil from the nation's Strategic Petroleum Reserves (SPR) over the next six months. This implies that roughly 1 million barrels of oil will be discharged every day for the next 6 months, the enormous supply of oil withdrawn yet from the US's existing petrol stocks. This is anticipated to cast down gas rates of $4.99 by about 10-35 cents/gallon.
What are these backup supplies?
Strategic Petrol Reserves or SPR is an oil backup maintained by countries to serve them in unexpected times of emergency when oil supply around the globe is botched up.
In the US, it is maintained by the Department of Energy so that the oil reserves can be used in unexpected times like natural disasters and wars. There are four areas along the Louisiana and Texas Gulf Coast where these oil reserves are held in deep underground storage caverns created in salt domes.
The US Holds Reserves
The reserves comprised 727 million kegs of oil in 2009; by October 2021, the stocks were about 605 million kegs, and as of March 25, 2022, the stocks held 568 million barrels of oil. Since November 2021, Joe Biden has wielded this backup thrice to retain minimal global oil prices.
In November 2021, Biden permitted the discharge of 50 million barrels.
In March 2022, the US enlisted 30 other countries (members of the International Energy Agency) to discharge 30 million kegs. The 180 million keg discharge is praised as the most massive release in American history and will curtail reserves to less than 400 million kegs.
Need the storage of reserves?
In 1975, the Organization of Petroleum Exporting Countries (OPEC) employed an oil sanction on the US, worsening the US Economy since they were dangling on OPEC for oil. To deter any further crises like these, the US agreed on stocking some oil casks as an emergency stash.
How does stocking up on reserves make a difference?
As per accepted economics, need and supply determine the rate of a product and for the rate to be stable over a duration, both need and stock have to be retained. When the pool is less than the need, more people will expect it, which boosts the rate of the product. Just like the way the oil rates are right now.
So, to curtail the prevailing price, Biden has to surge the market with oil from somewhere and provide them to those who want it the most - his citizens.