Ukraine crisis could sink US efforts to stabilize oil prices: Official

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Former Texas oil regulator Ryan Sitton told Sputnik that US President Joe Biden's plan to use emergency petroleum stocks to stabilize energy markets might backfire and send oil prices surging if the crisis in Ukraine lasts longer than six months.

President Joe Biden of the United States said at the end of March that his administration will release one million barrels of oil per day from the Strategic Petroleum Reserve (SPR) for the following six months. During this time, the United States and its partners intend to release a total of 240 million barrels of oil into the global market. 

"The risk in all this is if you use the Strategic Petroleum Reserve as a major bridge between this disruptive event and at the end of say six months it doesn't show any sign of improving, then what have you done? Well, I put a bunch of oil on the market and that lowered the price of oil, which means oil producers are less likely to invest in new oil wells," Sitton said.

Meanwhile, he noted, US producers are not producing additional oil since the SPR release keeps the price of oil low.

"Then when it works out that yes, sure enough, the Russians aren't backing out of Ukraine, this thing is not going anywhere, now we have already spent our Strategic Petroleum Reserve reserves and now the price of oil goes even higher," Sitton said.

Read more: Oil rebounds after 3-day loss, still at loss

Sitton, a former member of the Texas Railroad Commission, the energy regulator in the United States' top oil-producing state, forecasts a very long stalemate with Russia, implying that US sanctions may remain in place for a long time.

"There's gonna be a lot of repositioning of oil balances in oil markets," Sitton said. "Where do we get heavy oil from? And that may very well take longer than the Strategic Petroleum Reserve can bridge."

Sitton praises Biden for using the SPR wisely to maintain stability during times of upheaval and to have a significant impact on prices.

After Biden announced the SPR release at the end of March, crude benchmarks fell by more than 10%. By mid-April, the indexes had fallen below the $100 barrier before rebounding again, with Brent currently trading at roughly $108 per barrel and WTI at $102 as of Tuesday.

Sitton said the SPR may be used to rebalance the global oil market while supply routes and chains are restructured in the aftermath of the disruption.

Biden blames US oil, gas companies for hike in gasoline prices

When Biden originally revealed his proposal to unite allies and partners to impose broad sanctions on Russia, he warned that it could harm Americans as well, but he would do everything he could to mitigate the impact.

When it came to Americans' misery at the pump, however, the US President condemned oil companies for price gouging and blamed them for the huge surge in petrol prices, which have risen by up to 80% under the Biden administration.

Last month, the national average price of gasoline reached a record high of $4.33 a gallon after Washington and its allies imposed a slew of sanctions on Moscow, including a US ban on Russian oil imports. According to AAA, the national average has remained pretty high, running at $4.10 a gallon as of Tuesday.

Sitton described Biden's statements targeting the oil industry as "classic political maneuvering."

Read more: Biden orders unprecedented use of US oil stockpiles

"When the price of energy is going up, [US voters] they don't like what they're paying at the pump, the economy is slowing down, it's got a lot of both primary and secondary negative impacts, and those voters are going to vote differently in the polls," Sitton said. "So the classic political lever to pull is to blame the oil companies, to say it's all their fault."

There is obvious evidence that the price hike is 100% supply and demand related, induced by the novel coronavirus pandemic and government shutdowns, Sitton said, noting that oil prices went to negative $37 a barrel during that period.

"When some of these oil companies lost more money in 2020 than they had made in the previous three years, no one was lining up to help them," Sitton said. "No one was talking about how they were dealing with a tough market situation but boy, they make some money on the upside dealing with a different type of market situation and Biden is quick to throw them under the bus. I find that just pathetic."

According to Sitton, the United States lacks sufficient oil in major part due to green efforts and Democrats' anti-oil and gas policies.