5 Misunderstandings About Strategic Oil Reserve

The national average gas price rose this week for the 14th consecutive day, climbing above $3.50 per gallon for the first time since 2008. The hike comes in response to a jump in crude oil futures, which have traded above $100 for weeks on supply interruptions and fears that political unrest in the Middle East and Africa could intensify and eventually spread to some of the region’s top oil producers.

Following the script of other recent spikes, this latest rise in gas prices has precipitated a series of calls from both Democrats and Republicans to use a portion of the Strategic Petroleum Reserve. But for all of the rhetoric about releasing or expanding the reserve, not many people seem to know all that much about it or its purpose.

With that in mind, HybridCars.com takes a look at five common misunderstandings about Strategic Petroleum Reserve, and its power to protect us from a shortage of modern civilization’s most vital energy source.

1 It Was Designed to Protect Only Against Large Supply Disruptions. Not High Oil Prices

The SPR has never been a panacea for relieving the pain caused by high oil prices to businesses and consumers. In reality, the government’s ability to use it to stem the economic consequences of sustained or even short-term supply shortages is limited.

“The SPR exists to deal with large international supply disruptions,” said White House chief economist Austin Goolsbee this week. “The SPR exists to deal with large international supply disruptions. That is why we created it.” The Energy Policy and Conservation Act in 1975, which established the SPR, describes the criteria as “a severe energy supply interruption.” That’s currently not happening.

2 It Can Replace Less Than 40 Percent of Daily Oil Use (And Not For Long)

Though the SPR technically boasts 165 days worth of oil, that timeline doesn’t tell the whole story. With more than 720 million barrels of oil on hand, the supply actually represents less than two months of average American consumption. Even if the federal government wanted to release enough oil to meet the country’s daily 12 million barrel per day fix, it couldn’t, since the daily withdrawal capacity of the reserve is capped at about 4.4 million barrels.

3 It Can’t Reverse Long-Term Market Trends

Oil is traded on a series of international markets that respond to every significant change in supply or demand for the resource, allowing it to move wherever demand is greatest and prices are highest. These markets may be fickle, but they’re not stupid. Releasing a steady trickle of petroleum won’t trick anyone into thinking that there’s actually more oil in the world, and the markets will adjust to price-in a time when that spigot is finally cut.

But even in the short-run, trying to influence oil prices with the SPR is a dangerous game. “[It] will send a message we are scared, and it could mean an increase in prices, not a decrease,” said Christophe de Margerie, CEO of Total, a major French oil company recently. “It’s to be left for a time when we are really confronted with a shortage of oil, which is not the case.”

4 It’s Not a Very Good Way to Subsidize Consumer Energy Spending

Theoretically, if a major U.S. supplier were to suddenly lose all access to its petroleum fields, much of that fuel would eventually be replaced by more expensive oil purchased from other producers. In order to attract new producers though, Americans would be forced to pay more, and in so doing drive up prices for all of the other markets competing for that oil.

For this reason, the overall size and power of the U.S. reserves must be viewed both through the lens of domestic supply needs and those of the international market. As a portion of the world’s total daily oil use, the SPR is not all that significant.

5 It Doesn’t Protect Against Disruptions to Refining Capacity

A barrel of crude may be worth more than $100 on the international market, but as a means of fueling your car it’s only as useful as the tools you have to refine it into gasoline.

This reality took center stage in the period following Hurricane Katrina, when the U.S. lost a significant portion of its domestic refining capability located in the Gulf region. Though the government soon acted to release a portion of the reserve to counteract the effect of the storm on domestic oil production, the amount of gasoline available to consumers in the region still suffered because there was simply nowhere to refine the oil.

Though not relevant to the current oil price spikes, this point underscores the fact that SPR isn’t a fail-safe. The security it offers Americans against another oil crisis is at best temporary, and only applicable in the face of certain threats.

A Modern ‘Duck and Cover?’

Duck and Cover

A deeper look into the Strategic Petroleum Reserve’s purpose and capabilities reveals its potential to prevent the possibly catastrophic effects of a serious oil shortage is limited. So why does Washington spend billions each year maintaining and filling it? Aside from its real and potentially quite useful application as a limited buffer against supply disruptions, the reserve is a security blanket of sorts for the broader economy—keeping consumers and investors from panicking in response to small, temporary spikes.

“My sense is that the Strategic Petroleum Reserve is more important as a psychological aid (like the stashes of food survivalists keep in case of catastrophe) than as a practical solution to energy security,” writes author and energy specialist Lisa Margonelli in her excellent 2007 New York Times piece about the SPR. “In many ways, it is a relic of cold-war thinking that lives on even though the very idea of energy security has changed.”

Margonelli told HybridCars.com this week that only real protection against a rapid increase in gas prices remains breaking the nation’s addiction to oil. “Sure, we can try to put some more supply on the market to see if we can moderate prices. But the other thing we need to do is figure out how to lower demand.” She said that Americans are spending more than a billion dollars a day on gasoline. “It’s a hemorrhage.”

She called for looking beyond knee-jerk reactions to a “comprehensive program” with emergency measures to lower oil demand in the short term, and significantly reducing it in the long term.

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  • Samie

    Another great article. ‘Duck and Cover?’, outstanding analogy.

    My guess is that petro politics will continue for quite some time. I think it will take another generation of legislators to drastically change how we think of our energy needs. Opening the reserve is stupid but clearly we need to think beyond petro & start building a “electric reserve”, that is a national energy grid to reduce regional outages.

  • Anonymous

    strategic oil reserve, when needed, is likely going to be saved for the military and most critical uses only.

    even then, don’t expect it to be sustainable. the economy will see a huge shock if we don’t diversify and make more most out of our energy sources.

  • Anonn

    Thank you for your hard work.

  • Copyright infringement

    This story is a copyright infringement from Reuters.


    Quit being dicks and stop ripping off good reporting. I will be reporting you to Google News asking that they remove you from their news feed.

    Fucking morons.

  • Anonymous

    before you call anyone moron, look in the mirror first.

    the reuters news is by this website.

  • Halo9x

    The fact of the matter is very simple, we need to be drilling more in every place where we can. We have enough resources to reduce significantly or eliminate the need of importing foreign oil. There is no good reason for us to be as dependent on the Arabs except for stupid politicians who interfere with oil production. We need to learn what the Germans knew about converting coal in to a liquid fuel in WWII. We have vast resources that remain untouched.
    Why are the Chinese wanting to drill in our backyard? Are they going to be more environmentally responsible than our own companies? I doubt it! We should be drilling in Alaska, off the coast of California, off the East coast and every other place we have access to.
    The Dept. of Energy was “supposed” to make us energy independent. We are now more dependent on foreign oil now than when the DOE was created! It needs to be eliminated for incompetence.
    America did not get where it is today by being this insanely stupid. Yet, I see more stupidity in many of our politicians everyday. It’s like looking at people from some alternate universe or maybe they just went stupid on the rest of America.
    The author is correct. The Strategic Oil Reserves are there to protect against short term disruption and for our military. It was NOT created to help bring down oil prices. That would be like putting a band aide on a deep wound when what is needed is stitches. We can’t keep shooting ourselves in both feet if we expect to do anything in this world.
    We need to fire every progressive politician (democrat or republican) in Congress and the White House and put some more people in who will really tackle the problems we find ourselves in. It’s not too late but the clock is ticking and we ARE running out of time!

  • Halo9x

    Margonelli is correct we need to do something that is long term. The harsh reality is that there is NO viable alternative than gasoline/diesel for the millions of cars/trucks on the road. “Mr. Fusion” has NOT been invented. Fuel Cells are only affordable if you are Bill Gates, and Electric cars are not viable during Winter north of Dallas! Furthermore, electric cars are only good if you only want to drive to work and back. Where is anyone going to buy an electric car just so they can go to work, especially with the high cost? You can’t realistically do a road trip with an electric car. The Prius still goes farther than a Volt!
    In the REAL world the ONLY viable alternative is gasoline/diesel, PERIOD!
    So, we need to stop talking about the SPR and strat allowing our oil companies to do what they know how to do, DRILL, DRILL, DRILL!!! In the meantime maybe somebody could invent “Mr. Fusion” that people can actually afford, someday…

  • Anonymous

    wow halo9x, that’s a lot of rehoric with nothing to back it up. Try to educate yourself about drilling and how much it would help, not to mention for how long. then what? stop living by the seat of your pants and plan ahead for once. this is important because your money is being used to fight against you by hostile countries.

  • Anonymous

    the thing is that all of you are right,we need oil drilling now for the short term.
    this might get us out from under the big oil countries.they have huge profits so can we.
    we also need other energy sources so the hybrids are good but right now only starting out.we need to find and look at all ways,but we all know that will take time.i see that maybe if we drill the oil comps might want to slow up on the other energy types. so we must be sure that the do not.