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Rutgers experts explain Biden's plan to release oil from reserves to lower gas prices

Gas prices have risen since the start of the coronavirus disease (COVID-19) pandemic due to the fluctuating supply and demand of oil, Rutgers experts say. – Photo by Tewy / Wikimedia.org

On Nov. 23, President Joseph R. Biden Jr. announced the U.S. Department of Energy’s plan to lower gas prices for Americans and resolve supply and demand issues by releasing 50 million barrels of oil from the Strategic Petroleum Reserve (SPR).

Parul Jain, associate professor of professional practice in the Department of Finance and Economics, said the SPR is primarily a crude petroleum reserve meant to act as an energy stockpile in case of any severe supply disruptions. The reserve was created in 1975 in response to the 1973 energy crisis resulting from the Organization of the Petroleum Exporting Countries (OPEC) oil embargo.

She said the Biden Administration has been concerned about rising oil and gas prices for some time and has been constructing a plan to release oil reserves in coordination with other countries. Korea, Japan, India, China and the U.K. will provide 30 million barrels of oil in conjunction with the U.S. release, making a total of approximately 70 to 80 million barrels.

“So, the overall release amounted to about 70 (to) 80 million barrels, short of the 100 (plus) million barrels that (were) being priced in,” Jain said. “Oil prices actually rose on the heels of the announcement.”

She said that gas price issues first occurred when the coronavirus disease (COVID-19) pandemic disrupted the demand for oil, and suppliers responded by cutting down the supply. Demand has now recovered, but supply has been slow to meet it, causing prices to increase, Jain said.

New Jersey’s gas prices are currently approximately $3.40 per gallon, and there is still uncertainty regarding how this will change with the spread of the omicron COVID-19 variant, she said.

“Idle oil rigs cannot be reactivated easily, and with the increasing push to reduce dependence on fossil fuels, oil exploration has been more limited as well,” Jain said. “Most forecasters believe that oil prices will be firmer, once the current (COVID-19) concerns moderate.”

Clinton Andrews, professor in the Department of Public Planning and associate dean for research in the Edward J. Bloustein School of Planning and Public Policy, said the plan to release oil from the SPR has led to new realizations about how to manage the risks associated with energy supply.

He said the SPR highlights the importance of having extra storage capacity so the national and global economies are not as easily held hostage to specific geopolitical events, especially negative ones.

In addition, Andrews said that diversifying the sources of energy that are used for the economy is important so that the U.S. does not have to be dependent on domestic production from only one source.

He said he thinks the announcement is important mainly due to its symbolic value in demonstrating that Biden is listening to and acting on the concerns of the American public. Though, he said he does not think the measures will matter much, as there are greater factors at play that impact gas prices, such as supply and demand.

“We saw that very soon after the announcement was made, all it took was word that the omicron variant ... is sweeping the world to drive oil prices down pretty dramatically,” Andrews said. “Because what's more important than this increment of supply of oil is ... the demand for oil at any given moment because the price of oil or the price of gasoline is set by a market.”

For New Jersey, change in gas prices is not only dependent on the SPR but also on the supply of specific types of gasoline, he said.

Since the state is densely populated, it is highly sensitive to air pollution issues and can only provide less polluting types of gasoline to cars, Andrews said. New Jersey is most impacted by the supply of these types of gasoline, much of which is supplied from out-of-state, rather than the supply of general crude oil.

“We are eventually dependent on the supply chain that extends well beyond the state's borders, so there's price reasons to be interested because we're part of the same supply chain,” he said. “There's environmental reasons to be particularly interested in the special category of clean gasoline that we have to burn in this state.”


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