Will Biden’s plan to tap US oil reserves cut gasoline prices?

Citing the need to counteract the  "Putin price hike" following Russia's invasion of Ukraine, President Biden has announced a sweeping plan to make unprecedented use of US emergency oil stockpiles.

Under Biden's plan, the United States will release up to a million barrels a day every day for six months from its Strategic Petroleum Reserve (SPR).

On Friday, the International Energy Agency announced that a group of 30 other countries will also release crude onto the market from strategic holdings following an emergency meeting in Paris.

Biden's announcement Thursday prompted an immediate slump in oil prices, but the crude market was choppy on Friday, suggesting investor skepticism that the emergency releases will change the picture.

Below are some of the main questions about the SPR and the likely impact of the policy.

Set up in 1975 following the 1973 Arab oil embargo, the SPR is maintained in immense salt caverns along the Gulf of Mexico.

The IEA requires members to hold 90 days of import protection, a requirement the United States has traditionally met with SPR and industry stocks.

At its peak, the SPR contained 727 million barrels in December 2009. The level stood at 568 million barrels as of last week, according to government data.

If the United States goes forward with Biden's plan, it would reduce the SPR to levels not seen since the mid-1980s.

The White House's plan dwarfs previous SPR releases, which included President George HW Bush ordering about 17 million barrels released during the first Gulf War in 1991 and a 2011 release by President Barack Obama of 30.6 million barrels due to the disruption of Libyan production.

The announcement marks Biden's third move to tap the SPR.

In November, the United States announced it was putting out 50 million barrels of oil in response to soaring inflation amid pandemic-exacerbated supply chain snarls. Early last month, Washington also joined a 60 million emergency release announced by the IEA to address disruption from the Russian invasion.

Given the scale of the release, some analysts have said Energy Department officials may have trouble finding buyers for crude, or face infrastructure bottlenecks.

A note from JPMorgan Chase predicted the release would add 850,000 barrels per day, rather than one million, Bill O'Grady, chief market strategist at Confluence Investment Management, said that the move comes as the long-term need for so much stockpiling looks less acute because of decarbonization efforts to address climate change and as the US shale boom has lessened the need for imports.

"I don't think that oil will ever be replaced," O'Grady said.

Oil prices ended about three percent lower on Thursday following the official announcement after falling even more on the initial reports about the plan.

"The market reacted immediately after the announcement was made," said Andy Lipow of Lipow Oil Associates in Houston, who thinks gasoline prices will fall 10 to 15 cents a gallon due to the SPR release.

The move comes as the US president faces long odds in the November midterm elections, as runaway consumer prices weigh threaten to overshadow a strong labor market.

Biden described the policy as meant to  "ease the pain" of lofty gas prices, which now stand above $4.20 a gallon, up almost 50 percent from last year.

But now that the announcement has been priced in,  "the market will look to the next headline for direction," Lipow said.

"It's like a quick fix," said Jim Krane, a fellow at Rice University's Baker Institute for Public Policy.