Posts tagged “Strategic Petroleum Reserve”
The SPR Grew Without Buying A Barrel
Although mainly focused on the oil market’s current jitters over Syria, Liam Denning’s Wednesday “Heard on the Street” column in the Wall St. Journal neatly highlights the extraordinary degree to which resurgent US oil production and weaker US demand have boosted the effectiveness of US oil inventories, including the US Strategic Petroleum Reserve (SPR). Without adding a drop — the SPR actually shrank a bit in 2011 — the reserve’s potential to replace daily imports in a crisis has soared as those imports have declined.
In the near term this could prove extremely helpful should expected US-led reprisals against the Syrian government result in a regional disruption of oil flows. Longer term, it serves as a further reminder that the existing SPR was designed for another era and is overdue for a major rethink.
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.
In Issue #7 of Energy Trends Insider, a reader asked about the potential implications of the Obama Administration’s recent announcement that they were considering a release of oil from the Strategic Petroleum Reserve (SPR). My view is that since it is an election season and gasoline prices have remained stubbornly high, the chance of a release from the SPR is high. Having a Democrat in the White House also increases the odds, as illustrated by this post.
If the Obama Administration orders a release, it would be the 2nd time the administration had tapped the SPR. In 2011 the Obama Administration ordered a release of 30 million barrels of oil in conjunction with a 30 million barrel release from other members of the International Energy Agency. At that time, oil prices were already well off their highs, and the impact was short-lived.
With the 2011 release, the price of West Texas Intermediate (WTI) dropped by 4% on the day the release was announced, but one week later the price was higher than it was before the release was announced. If you look at the data from the EIA, you can see the fleeting impact of that 30 million barrel release (the announcement was on June 23, 2011 when the price of WTI was $94.96). The price dipped, climbed back up, dipped again as summer driving season ended, but by year-end was back above $100/bbl.
The United States and Britain have apparently been discussing a joint release of strategic petroleum stockpiles.
The U.S. Strategic Petroleum Reserve was intended to be used in the event of a “severe energy supply interruption” whose legal definition is as follows:
A severe energy supply interruption shall be deemed to exist if the President determines that–
- an emergency situation exists and there is a significant reduction in supply which is of significant scope and duration;
- a severe increase in the price of petroleum products has resulted from such emergency situation; and
- such price increase is likely to cause a major adverse impact on the national economy.
Historical experience has shown that seemingly temporary supply disruptions can have very long-lasting consequences. Libyan oil production in November was still only about a third of what the country had been producing in January 2011 prior to last year’s disruptions. Iraqi production still has not returned to the average value seen in 1989 prior to the First Persian Gulf War. Iranian production has never returned to the average values achieved in 1977 prior to its revolution.
Rising Gas Prices Prompt Calls For Release of Oil From SPR
Rising gas prices are back in the news again. Oil has gone back above $100 a barrel, and gasoline prices are about to push through the $4 a gallon price. This has led to President Obama sparring with Republican Congressional leaders and his potential opponents. It has also led to Congressional Democrats asking for a release of oil from the Strategic Petroleum Reserve (SPR) in an effort to dodge this issue any way they can. Fellow columnist, Robert Rapier, has often criticized the usage of the SPR as a political tool in an effort to lower gas prices.
Don’t count me as one who thinks that, if only we allowed drilling anywhere, we would suddenly have $2.00/gallon gas. I sat through Newt’s 30 minute speech on energy policy, and it drives me crazy that people actually expect that simply pushing more domestic drilling will fix the problem. I went on the record as supporting Jon Huntsman’s energy policy because it lived in the real world and acknowledged that there were no quick fixes.
Oil prices are a factor of global supply and demand, both currently, and in the future. Prices are being pushed up by increased demand for oil from developing countries, combined with prospects of renewed conflict in the Persian Gulf. I would suggest reading Dr. James Hamilton’s Econbrowser “Crude Oil and Gasoline Prices: Betting on Iranian Tensions” post about what’s driving prices.
I was strongly opposed to the recent decision to release oil from U.S. and international strategic petroleum reserves. I have covered the reasons for my opposition many times, but the single biggest reason I oppose these sorts of releases is that the fundamental reason for the existence of the Strategic Petroleum Reserve (SPR) is to provide insurance in case of a supply emergency. Politicians who use the reserve in an attempt to influence gas prices so they can enhance their chances of reelection should be thrown in jail if a national emergency does occur and we find ourselves with a depleted reserve. I have also pointed out the irony that politicians who are deeply concerned about climate change are leading… Continue»
Falling Into the Trap of Influencing the Crude Oil Markets It seems that nothing quite brings out the silliness in politicians like the Strategic Petroleum Reserve (SPR). As you undoubtedly have now heard, the United States and the International Energy Agency are coordinating to release 60 million barrels of oil to the world markets. The U.S. portion of the release will be 30 million barrels from the SPR. As I noted recently, despite my general Democratic leanings, I think Democrats are the most out-of-touch party when it comes to energy policy. I think the root of the problem can be understood if one examines some of the core beliefs of the Democratic party about energy and the environment. One is… Continue»
While Robert continues his trip to Europe and across the Continental U.S., a significant piece of news has been dominating the headlines. Although we’ve been closely monitoring the release of 60 million barrels of crude on our Energy Ticker page, we also wanted to generate some discussion on the topic, here, on the R-Squared Energy Blog. Robert has, in the past, covered the topic of using the Strategic Petroleum Reserve as a weapon to control prices. In one article, he argued against politicians who were calling for a release, titling the essay: “Speculator’s Political Reserve?“. Robert also observed the Jekyll & Hyde phenomenon in “Contradicting Goals: Cheap Gas and Lower Carbon Emissions“. The topic was also covered in his “Debunking… Continue»
The following guest post is from OilPrice.com. (Readers know my feelings about using the Strategic Petroleum Reserve to fight high oil prices). ———————————— It’s Time for Obama to Spook the Oil Markets The fate of the Obama presidency hangs not on a birth certificate or the red ink on the federal budget but by the hose nozzle of your local gas station. Electoral discontent is measured by the price of a gallon of gasoline. Heading past $4 toward $5, that is a lethal trajectory for President Barack Obama. Enter the demagogues, especially the clown-in-a-business-suit, Donald Trump. Unfettered by the gravity that goes with facts, Trump says that he would fix the oil price – now around $110 a barrel –… Continue»