The federal government on Friday confirmed that it is considering tapping the nation’s strategic petroleum reserve (SPR) for the first time in 10 years, arguing that prices at the pump have soared due to an unprecedented run-up in the global crude oil market.
Oil prices spiked above $65 a barrel this week, touching their highest point since mid-2015, spurred by concerns over a potential supply glut amid geopolitical tensions in Iran and Venezuela, as well as ongoing production disruptions in Canada.
The Department of Energy (DoE) said in a statement that prices at the pump are showing signs of “significantly” rising, largely because of “the resulting decline in gasoline supplies”, adding that “tight global gasoline supplies” have been adding upward pressure to prices at the pump across the country. The department added that the stockpile – held in underground salt caverns in Texas and Louisiana – was “not currently refilled, but could be quickly made available to the market if prices reach a level that causes the country to need the facility to act to provide added supply”.
Should the government decide to put the reserve to use, analysts say it could help stabilize prices in the short term and pump some much-needed positive momentum into the weak US economy. But in the long term, some believe that simply putting the oil on hand on hold makes little sense.
“The consequences of releasing SPR into the market could be devastating for the economy for several years,” Charles Ebinger, the energy director at the Brookings Institution, wrote in a report this week. “That would probably necessitate a case that stronger than usual oil demand is partly a result of sustained high crude prices, which at the moment does not appear to be the case.”
A rise in oil prices has traditionally resulted in higher gasoline prices on both sides of the Atlantic, particularly in the year following a presidential election. During the last three presidential election cycles, prices have jumped an average of 15.5 cents a gallon.
The DOE statement comes two days after Jeff Nichols, a senior policy adviser to the US president, told the Associated Press that Trump might tap the reserve should prices continue to rise. Trump had previously threatened to take action against countries that didn’t work with the US to reduce their oil import dependencies or purchase more from the US in May 2017.
The SPR was established by the federal government in 1975 to deal with oil supply interruptions during times of war, energy shortage or during an economic downturn, and holds some 70m barrels of crude oil, which is equal to about 90 days’ worth of domestic US consumption.
President Obama tapped the SPR seven times. In 2016, he also approved the use of the emergency reserves to help offset the effects of Hurricanes Harvey and Irma, as well as fuel shortages in the New York area following Hurricane Sandy in 2012.
From 2007 to 2009, there were 23 SPR releases. There were 11 releases during the Clinton administration and seven during the Bush administration.