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By Andrew Holland on Sep 11, 2012 with 1 response

Why it’s the Wrong Time to Release Emergency Oil Reserves

High Gas Prices During Election Season

Last week, reports from both Platts Energy News and Reuters said that officials in the Obama Administration are considering releasing oil from the U.S. Strategic Petroleum Reserve. The Platts report even said that a release was “imminent,” citing a meeting on Thursday at the White House with oil analysts. Other reports stated that the release could be up to 180 million barrels – six times as large as last summer’s.

Such a release would be contrary to the rationale of having Strategic Petroleum Reserves, and — coming only 60 days before an election — it would be a nakedly political ploy seemingly aimed only at alleviating a persistent political vulnerability: high gas prices.

To be clear, this is not a partisan attack – I have supported many of the President’s energy policies. The release of 30 million barrels of reserves in response to the loss of production from Libya in the summer of 2011 (along with 30 million more from our allies in the IEA) was very important in maintaining oil supplies. The long-term policies the Administration has put in place to reduce demand for oil – like the increase in fuel economy standards or incentives to develop alternative fuels – will be very important in increasing America’s energy security.  However, a release at this time could only be seen as a political move to increase the President’s chances of reelection, not as an effort to alleviate threats to energy security.

Global oil prices have remained surprisingly high, with Brent Crude prices staying above $110 since early August. Gasoline prices, too, have remained high at an average of above $3.80 per gallon for regular unleaded – the highest recorded price on Labor Day.

Even so, the market is fully supplied. America’s refineries – other than a small 1 million barrel loan to Marathon oil in the wake of Hurricane Isaac – are able to meet energy demand. According to the EIA, there are more than 21 days of gasoline supply in reserve – a low, but not extreme level. And, with refiners about to make the changeover on September 15 to winter blends of gasoline, it simply would not make sense to keep high reserves of gasoline.

A release at this time would be contrary to the reason for the creation of the Reserve. The Energy Policy and Conservation Act of 1975 authorized the creation of the reserve in response to the Arab oil embargo of 1973. The law states that the reserve is intended to provide relief during a time of a “severe energy supply interruption.” The law gives the President the authority to determine when such an interruption is occurring, and includes “severe increase in the price of petroleum products” as a possible rationale for a release. However, what we’re seeing now is neither an interruption of supply nor a severe increase in prices. While the Administration’s justification for a release from the reserve would of course be cloaked in legalese saying that the release is allowed under the law – there would really be no way to justify such a release.

At this point, barring an unforeseen spike in oil prices or massive disruption in supply (like a Katrina-sized Hurricane), there is only one other possible reason for a release of oil from the reserve: that a conflict which would threaten oil supplies is imminent. We know that the Strait of Hormuz – through which about 20% of the world’s oil supplies flow – is vulnerable to pressure from Iran. However, even if a conflict with Iran were imminent, it is better to prepare for a release, but leave the bullet in the chamber until the actual supply disruption comes.

Political Ploy

I worry that this idea has come from the President’s political advisors, instead of his security or energy advisors. Politically, the move could be justifiable as a way to help the President’s election. In the spring, Governor Romney jumped out to a lead on the back of a gas price spike. A March poll that showed that 54% of the country believed that “Gas Prices are Something the President can do a lot about” compared with 34% who said that they are not (note: the correct answer to this question is that they are not). Added to this is that the preferred policy response for Democrats on oil prices since early in the Clinton Administration has been to release oil from the reserve. Therefore, it is credible that advisors believe that “we have to do something” – but the speculation should end there.

We should not allow political concerns to trump real energy security needs. There is no rationale at this time for a release of oil from America’s Strategic Petroleum Reserve that meets the statutory demand for a “severe energy supply interruption.”

  1. By Francisco on September 12, 2012 at 10:30 am

    All I know is, eventually we will not need it, much less the sea of oil under our feet, why? By the time we decide to use it, the world will be flooded with electric vehicles and natural gas/propane, so you figure, and in the meantime, we are sending our wealth to America haters.

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