PHOENIX — Situated along the gulf coast from Texas to Louisiana sits a group of underground salt caverns where the country’s strategic petroleum reserve is stored. At its peak, the reserve had 727 million barrels of oil stored within. Today that number is closer to 568 million.
In response to the global shortage of oil supply brought on by Russia’s war in Ukraine, President Biden has ordered the largest release of oil from the strategic reserve in its history. For the next six months, one million barrels a day will be injected into the nation’s supply. A total of about 180 million barrels.
The purpose of such a large draw is to bring down sky-high gas prices. As to whether the move will succeed is harder to say. The move is unprecedented.
The US Energy Information Agency reports that this past February 61% of the cost of a gallon of gas at the pump can be attributed to the price of crude oil, a 5-point increase from January.
Because the price of oil is the largest factor at play the price of gasoline is inherently tied to oil. The two have largely correlated with each other for the past 20 years, as far back as the data goes. The past four months have seen the per barrel cost of WTI Oil, the US benchmark, rise about 70% from $66 a barrel to $113, putting no downward pressure on the price of gas. One of the major reasons for a steady 1 million barrels a day draw from the reserve is to add downward pressure.
Western State Average Cost of Regular Gas and WTI Futures since 2000:
Western State Average Cost of Regular Gas and WTI Futures since 2020:
This is all on the supply side of the equation. The demand side of the equation does offer a little near-term good news. Data from AAA shows the average cost of a gallon of regular gasoline stands at $4.68 Thursday, one cent lower than Wednesday. The average is still up slightly from a week ago, but any downward movement is welcome.
Aldo Vasquez, a spokesperson for AAA Arizona told ABC15 that even with high prices the demand for gas should remain strong.
“If trends have any indication of what we’ve seen so far, what we’ve seen in the past is that gasoline prices really don’t affect people’s travel plans,” Vasquez said. “People are still going to get out there and they are still going to travel despite high gas prices.
It comes down to summer demand, which should increase. An extra million barrels of oil a day being injected into the system may create a situation in which gas prices don’t really fall, but they don’t really rise much either.