Oil prices sharply declined to their lowest level in four months after the United States and 27 allies announced that they are planning to release 60 million barrels of crude oil from reserves. Increasing the oil supply could lower gas prices up to 50 cents a gallon, but relief at the pump is still several weeks away.
The purpose of tapping the oil reserves is to boost the global economy. The US is hoping to avoid another recession, as recent sky-high oil and gas prices have been contributing to the slow economy.
Gas prices have skyrocketed in recent months, surpassing the $4-a-gallon mark in May. Though gas prices have decreased since their recent peak, today’s national average price for regular unleaded is still over $3.61 a gallon, which is more than 87 cents above gas prices one year ago, according to the AAA Fuel gauge Report.
The International Energy Agency (IEA), which includes the United States,will release 2 million barrels per day over the next 30 days to offset the disruption of oil supplies from Libya. The IEA estimates that the troubles in Libya will have removed 132 million barrels of light, sweet crude from the global markets as of the end of May, or about 1.5 million barrels a day.
Although the 60 million barrels being sold into the world markets over the next month won’t be enough to offset the losses in Libya, it should continue to ease global oil prices, just in time for the peak summer driving season. Today oil prices dropped sharply, almost a 5 percent decrease, after the IEA made the announcement.
Many people are surprised that the US has agreed to tap its oil reserves, because the reserves are typically used only in case of an emergency.The US has about 727 million barrels in reserves, stored along the Texas and Louisiana coasts.
This will be the third time that reserves have been tapped. The first time the U.S. released oil from its reserves was in January 1991, when the first Gulf War started and gas prices spiked. The second release was in September 2005, after Hurricane Katrina destroyed refineries along the Gulf Coast.