The U.S. Strategic Petroleum Reserve Is For Emergencies, Not Balancing Markets
In recent weeks, Democratic members of Congress have called for the release of oil from the U.S. Strategic Petroleum Reserve, presumably as a tool to bring down prices Americans are paying at the pump. This is not what the SPR was intended for, and any impact from such a release would be short-lived and too small a band-aid on a serious situation.
The White House has yet to confirm if this is a step they are planning to take, although media outlets have reported it could be done in coordination with a similar release from China’s reserves. When asked specifically if this is something the President is planning to do during a recent press briefing, Press Secretary Jen Psaki deflected saying that she didn’t have a “preview” to share and that “certainly the cost of gas is on the minds of the — on the mind of the President, as it is on the mind of many Americans across the country.”
Psaki insisted the administration has taken steps to address rising prices at the pump. But those steps include begging OPEC to increase its supplies and falsely accusing domestic producers of price gouging. Not once did she mention asking U.S. oil and gas companies to ramp up production.
In fact, in another briefing this week, Psaki said that the administration was forced to comply with a federal court order requiring it to hold oil and gas lease sales – actions that lead to more production – and that they felt the decision “is wrong.” This follows the head of the Department of Energy laughing when asked about her plan to increase domestic production; the cancellation of the Keystone XL pipeline; and calls to shut down another critical pipeline system in the Midwest. Not to mention a legislative package in Congress that would cripple U.S. producers and send prices even higher for Americans if passed as currently written.
The solution to rising prices can be found domestically, but it’s not through the SPR. The Independent Petroleum Association of America strongly opposes the use of strategic oil reserves to try to manipulate gasoline prices. Market interference makes us all more vulnerable and is counterproductive to long-term adjustments in the marketplace. A better solution is to enhance, rather than hindering, America’s leadership in natural gas and oil production.
As the American Petroleum Institute’s Chief Economist Dean Foreman recently said:
“When the Biden administration signals that it wants to incentivize a shift away from oil and other fossil fuels, and then it takes actions like we’ve seen – freezing oil and natural gas leasing on federal lands, killing the largest U.S.-Canadian pipeline project in Keystone XL, considering that the oil and gas industry be taxed more so and differently than every other U.S. manufacturing sector – these add uncertainty about whether long-lived investments in fossil fuels will be worthwhile, which is completely the wrong signal for the industry to be able to meet consumer demand in the immediate and near future.”
Price Impact from SPR Release Would Be Minimal, Temporary
The Energy Information Administration’s Stephen Nally testified during a Senate Energy and Natural Resources hearing this week, emphasizing on multiple occasions that any release from the SPR would only provide “temporary” and “short-lived” impacts. He further explained:
“Based on past analysis…it would provide temporary relief…There are limits to what can be released in a short-term situation. We did some recent analysis where it looked like somewhere between 15 million barrels to 48 million barrels for a short period of time would bring down the price of crude oil about $2 per barrel and about five to 10 cents at the pump.” (emphasis added)
How temporary are we talking? Well, in 2011 – after a prior SPR release – the decreased prices lasted about two weeks before they increased to even higher than they were before. As CNN Money reported in 2012:
“Last June 8, a similar signal by White House Press Secretary Jay Carney that an SPR release was being considered sent oil futures down 9% and gas prices down 3% during the two weeks before the release was announced formally. Following the June 23 SPR release announcement, pump prices dropped another 2%. But they stayed down for just over two weeks, the time it took for the Department of Energy to sell the oil for about $105 a barrel. After that, pump prices rebounded to above the pre-release level for most of the rest of the summer. Gas didn’t stay below the price before the SPR release until mid-September — when prices traditionally decline as summer driving winds down and use of summer fuel blends required by environmental regulations ends.” (emphasis added)
That’s not a solution – it’s an ill-managed band-aid.
The SPR was created to deal with crude oil supply emergencies. The Independent Petroleum Association of America has long held the position that the SPR should not be used to manipulate the crude oil market or product markets. It should be a safety net in case of disruption of crude oil supplies.
Policy makers should oppose all non-emergency sales of oil, regardless of any political calculations that an administration may want to make.
Our true domestic natural gas and oil reserves – from production to pipelines and through the supply chain, all the way into our homes and cars – are ready to work. But the current administration’s policies are the cause of high gas prices, not the solution.