On Nov. 23, President Joe Biden tweeted: “Today I'm announcing action to lower the cost of gas and oil for American families.” The tweet said he was calling for the release of 50 million barrels of oil from the Strategic Petroleum Reserve “to lower gas and oil prices for Americans.”
The Strategic Petroleum Reserve is made up of oil storage facilities located in Texas and Louisiana along the Gulf Coast, according to the Department of Energy. As of Nov. 21, there were 604.5 million barrels of oil in storage.
According to GasBuddy data published Nov. 24, current fuel inventories in the U.S. are 8.1% lower than a year ago, and are 6% below the five-year average for this time of year.
Does the release of 50 million barrels of oil mean there will be a dramatic drop in gas prices?
No, experts say there will not be a dramatic drop in gas prices because of the reserve release.
WHAT WE FOUND
Gas prices will not decrease dramatically because the White House plan is to release 50 million barrels of oil in two parts: 32 million barrels will be exchanged and 18 million will be sold. The idea is to increase the supply of oil, which would push gas prices down.
According to the U.S. Energy and Information Agency (EIA), as of Nov. 22, the national average price of gasoline in the U.S. was at $3.39 a gallon -- in December 2020 gas prices on average were at $2.19 per gallon.
Retail gas prices are mainly affected by crude oil prices and the level of gasoline supply relative to gasoline demand, the EIA states on it’s website.
Ellen Edmonds, public relations manager for AAA, told VERIFY in an email: “Based on our data, we are not expecting a dramatic drop in prices.” Andy Lipow, president of Lipow Oil Associates, a consulting firm based out of Houston, told VERIFY the biggest misconception from Biden’s announcement is that this will immediately lower gas prices.
Most of the oil, he said, is going on the market for the exchange and sale in 2022, and it doesn’t equal new production. So if there were to be a drop in price, it might be months before it shows at the gas pump.
“The devil is in the details with the 50 million barrels Strategic Petroleum Reserve release of crude oil … The first part is an exchange or a loan of 32 million barrels, which means that refiners can receive this oil in the first part of 2022. But they can take several years to repay that loan back. In essence, it doesn't get any more oil out of the ground,” Lipow said. “The second part of the Strategic Petroleum Reserve release is an outright sale of 18 million barrels.”
The oil doesn’t necessarily get released to only American refiners, Lipow said. Refiners from China and Europe, for example, could bid for the exchange or sale.
Plus, there are other factors to consider that would alter gas prices, not just releasing the oil reserves.
“The reason that the consumer will not see a significant decline is because the oil market remains tight. Now, while this has accelerated the supply of oil, it hasn't fixed the problem, because most of that oil still needs to be paid back in the future,” Lipow said. “And we see world oil demand continuing to return, you can just look at how the U.S. is now welcoming tourists, that's going to increase the demand for jet fuel.”
AAA told VERIFY that if gas prices do lower, they aren’t likely to do so until near the year-end holidays in December.