PITTSBURGH (Newsradio KDKA) - To borrow & twist a favorite economic phrase from the White House; fuel prices are a pain from the “bottom up and the middle out.” President Biden making big waves last week when announcing for a third time in 6 months that his administration will release oil from the national reserves in order to curb soaring gas prices. A million barrels a day has never been done let alone daily for 180 days straight. The president ordered the release of 50 million barrels in November. This was the second largest amount ever sold off. The result on gas prices was a few cents per gallon for a few days nationally. Unfortunately, the gas stations near me never really adjusted their signs. The president also committed to the release of 30 million barrels on March 1 in an effort alleviate nerves following Russia’s invasion of Ukraine.
This next flush could drop prices .15 cents a gallon, according to the National Petroleum Council. But what will it cost to replace? And, how large is our nation’s collective oil savings account? Where is this stash located? Are there any other options?
According to the US Energy Department’s ‘Office of Fossil Energy and Carbon Management’, The United States Strategic Petroleum Reserve has a storage capacity of 714 million barrels of black gold in underground salt caverns at 4 facilities along the Gulf Coast. Two are in Texas: Big Hill and Bryan Mound. Two are in Louisiana: West Hackberry and Bayou Choctaw. There is currently 568.3 million barrels on hand at these facilities. This could theoretically protect us from a world flow stoppage for months. The US Energy Information Administration reports that the United States imports about 8.4 million barrels of petroleum each day from a total of 73 countries. Imports from Russia account for about 8% of that. New purchases of Russian oil & gas have been prohibited since March 8 when a 45-day wind-down period for the importation of purchases already under contract was announced by President Biden. This latest release basically offsets the ban of Russian imports, which is scheduled to take full effect on April 22nd.
It takes 13 days for oil from the Strategic Petroleum Reserve to hit the market once a presidential decision is official. This latest release begins in May and runs through November. The maximum daily drawdown capacity from the reserves is about 4.4 million barrels. Until the current decision, the US has never withdrawn more than 864,000 barrels a day. Each barrel contains 42 gallons.
The dollar cost average price paid for the oil currently in the reserve is reportedly $29.70 per barrel. That is a phenomenal price! Oil blends from different regions of the world cost different amounts. Today, OPEC Basket oil goes for $104.90 a barrel. West Texas Intermediate Crude is $102.74. This price is down about 13% since last week.
According to oilprice.com, a gallon of gasoline sitting in a refiner tank costs $3.187 today. Remember, before it gets into your car and on the opposite end of your foot via the vertical pedal on the right, The Commonwealth of Pennsylvania will add 57.6 cents per gallon in tax (currently the nation’s highest). The Federal government will add 18.3 cents. By the time it is shipped to your favorite station and marked up for a modest profit along the way it will cost you $4.29. The national average was $2.873 one year ago, according to AAA. It was $2.39 when the president was inaugurated despite various memes and media reports otherwise. Will this release get us back in that range by the all-important midterm elections in November? No. Especially if we have yet another “moment of peril” after we drain this 180,000,000 barrels from savings.
A million barrels a day sounds like a lot because it is. However, US oil consumption is about 20 million barrels of a day. So, we are cracking open the greasy piggy bank in order to offset our daily spending by 5% each day. Think of it as going into our savings to take out $1 a day to offset the fact that we spend $20. Are gas prices going to temporarily drop 5%? Or are we really just robbing Peter to pay Paul? This drawdown is a short-term solution. 180 million barrels is 2 days worth of global demand.
A 5% drop would cut prices to about $4.08 a gallon in Western PA which is better than the current $4.29 average according to gasbuddy.com. Unfortunately, The National Petroleum Council says it won’t be that large of a drop. Both predictions are still higher than what you’d pay it you were currently a club member of, say, Costco, Sam’s Club or BJ’s. And, at some point in the near future we will have to refill the reserves. The proceeds from the sale of oil from the Strategic Oil Reserves must be used to replace the pilfered stash within a YEAR! So, this release is a gamble.
What price do you think fuel will be at a year from now? Is Russia’s war in Ukraine the emergency we were waiting for? I’m guessing ‘more than we spent filling the tanks’ and ‘NO.’ And from whom shall we buy it? Texas? Canada? OPEC? Wouldn’t it be interesting if we are asked to buy Russian oil in the name of rebuilding Ukraine? Will it be less than $102 a barrel? Probably, unless more geopolitical drama unfolds. Let’s hope that China does not act on its desire to make Taiwan its one & only once our reserves are sucked down to about a half a tank.
I heard some politicos express hope that the current price at the pump may force some Americans to go buy electric cars. Maybe. However, electric cars are expensive and Chinese aggression would make the cost of those electric car batteries blast sky high. Electric cars are cool. But, when you charge that car you do so likely with coal or natural gas power as only 2.3% of our energy comes from solar. And, our grid would collapse at the surging demand. Also, many jurisdictions are raising registration fees on electric cars because their use does not contribute to gas taxes. The technology, logistics and economics are just are not favorable for the masses just yet.
And, please do not even mention the proposed ’Gas Rebate Act’ put forth by some lawmakers in DC. This plan would have the federal government send $100 to single tax filers making less than $75,000 or $150,000 for joint filers. Each dependent would also tally 100 bucks. Sounds good until you realize they are simply adding to our future debts or returning money they already took from you. A second plan would send filers $360 annually by charging oil companies a windfall tax if barrel prices exceeded 50% more than the average price per barrel between 2015-2019. In reality that tax would get passed on to the consumer. These proposals may secure some candidate a few votes but they will not help your pocketbook. You would pay for both plans in the end.
We are in a tough spot. Belt-tightening is unfortunately upon us. It is hard to predict how much of an impact this round of government benevolence will have on the lighted signs at gas stations. However, the national average price has already dropped six cents in the last week. Demand is down a bit over the last 7-days. Gasoline reserves have slightly rebounded. OPEC has announced that it will gradually ramp up production, as well. And, oil prices fell a bit today because, after 7-years of fighting in Yemen, the US-backed United Arab Emirates and the Iranian-supported Houthis agreed to a truce. So, maybe, just maybe, the markets could take care of this latest pressure without emergency intervention that could cost taxpayers a lot more in the end than this current strain ever will.
Kevin Battle likes walking and riding bikes however he does not want these to be his only modes of transportation. Battle is cohost of the KDKA Radio Morning Show with Larry Richert. It airs M-F 5a-9a on Pittsburgh’s 100.1FM & AM1020 KDKA or on the free Audacy app. Ask your smartspeaker to: ‘Play KDKA.’ Thank you.
