The Department of Energy is opening up the oil taps at the Strategic Petroleum Reserve in a bid to reduce the price of energy.
In a surprise announcement Thursday, US Energy Secretary Steven Chu says the US and its 27 partners in the International Energy Agency will pump 60 million barrels of oil into the world markets over the next 30 days. This represents about 2.4 percent of world oil production.
The US contribution from the Strategic Petroleum Reserve (SPR) will be 30 million barrels of oil, or about 1 million barrels per day. The US uses about 18 million barrels of oil per day.
The main reason for the release is the “ongoing loss of crude oil due to the disruptions in Libya and other countries and their impact on the global recovery,” Mr. Chu said via a press release.
In a background briefing for journalists, senior officials at the White House said some 140 million barrels of oil had been lost to the market as a result of turmoil in Libya. The last time the US released oil from the SPR was after hurricane Katrina shut down oil production in the Gulf, in 2005. Then, the US released 38 million barrels of oil to help refiners supply petroleum products.
White House officials said the release of oil has been coordinated with Saudi Arabia and other producing nations. The Saudis and other Gulf state producers have said they will release 1.5 million barrels of oil per day to make up for the lost Libyan production.
“We view this as complementing what the Saudis plan to do,” said a White House official, speaking on background.
With the announcement, the price of oil dropped steeply Thursday, falling more than $5 a barrel to about $90 a barrel on the New York Mercantile Exchange.
Energy analysts expect the move will mean lower gasoline prices for consumers this summer. That would give Americans more discretionary spending power, helping businesses ranging from grocery stores to ice cream parlors. It will also give manufacturers and truckers a break, because the price of diesel fuel is expected to drop as well.
Gasoline prices have been falling for several weeks, after peaking at about $3.98 a gallon last month. The average price of gasoline nationally is now $3.61 a gallon, down 27 cents a gallon from a month ago, according to AAA, the national motorists’ club.
The announcement came a day after Federal Reserve Chairman Ben Bernanke told reporters the Fed is not certain why the economic recovery is slow. He said one reason might be related to the high price of energy earlier this spring. Wall Street reacted badly to Mr. Bernanke's comments, with the Dow Jones Industrial Average dropping almost 200 points in the opening hour on Thursday.