Will oil rescue prevent high gas prices?
The US and the UK are reportedly teaming up in an effort to ease prices at the pump.
The United States and Britain agreed Thursday to release emergency oil reserves in an effort to prevent high gasoline prices from further crippling the economy, Reuters reported.
A formal U.S. request asking the United Kingdom to release oil from government-controlled reserves is expected shortly, the news service reported, citing sources. The request would follow a meeting Wednesday in Washington between President Barack Obama and Prime Minister David Cameron, who reportedly discussed the issue.
But will the oil release do any good?
Oil prices (USO) have remained elevated this year. After dipping to $96 per barrel in early February, light sweet crude rebounded to as high as $110 in March. Meanwhile, brent crude climbed above $127 per barrel. On Thursday, the average price for a gallon of gas at the pump was $3.82 -- 31 cents higher than a month ago.
Hear more about America's dependence on on foreign oil in the following video.
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The previous announcement to release inventories from the Strategic Petroleum Reserve came last year on June 24. The release totaled 60 million barrels globally and half of that came from the U.S. At the time of the announcement, oil traded at $91 per barrel. Oil increased to above $97 until the actual release of the reserves on July 15. Even with the added oil supply, oil prices only fell to $88 per barrel by the time the emergency release was completed. Since then, oil prices have found a firm footing above $100 per barrel.
According to the U.S. Energy Information Administration, the U.S. consumes about 19 million barrels of crude oil a day. A 30 million-barrel release was not even enough to cover our energy needs for two days. World oil consumption is around 85 million barrels per day, meaning the previous total emergency release of 60 million barrels was not enough to cover just one day of world consumption. Like before, another release from the Strategic Petroleum Reserve is not likely to have a large or long-lasting impact on crude prices.
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Eric McWhinnie is an editor at Wall St. Cheat Sheet. As of this writing, he did not own a position in any of the aforementioned stocks.
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