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4 min read . Updated: 02 Apr 2022, 02:02 PM IST The Biden administrationis preparing to release up to 1 million barrels of oil a day from the U.S. Strategic Petroleum Reserve, according to people familiar with the plans, an effort to curb the surge in energy prices and tamp down soaring inflation.
Here’s what you need to know about the SPR.
What is the Strategic Petroleum Reserve?
The U.S. Strategic Petroleum Reserve consists of four underground salt caverns along the Texas and Louisiana coasts that held about 568 million barrels of oil as of March 24, according to the Energy Information Administration. That is enough to satisfy U.S. demand for several weeks.
The supply is owned by the U.S. government and managed by the Energy Department. Federal law gives U.S. presidents the power to release oil from the reserves to minimize supply disruptions.
A president may release oil if they determine the move to be required by a “severe energy supply interruption," which is defined as a national energy supply shortage that is significant in scope and duration, that is “of an emergency nature" or that could cause “major adverse impact" on the national economy.
Why is the White House thinking about a release now?
Russia’s invasion of Ukraine and punishing Western sanctions have crimped global oil supplies and propelled gas and diesel prices higher. Average gas prices in the U.S. hit $4.22 a gallon at the end of March, up $1.35 a gallon from a year earlier, according to the American Automobile Association.
Didn’t the U.S. release oil from the reserve recently?
Yes. The administration has twice tapped the SPR in the past several months as part of a coordinated effort with other countries. The U.S. initially released 50 million barrels of oil from the reserve in November, and then a further 30 million barrels in March.
Though the releases provided some relief, they didn’t dramatically lower prices. After a brief decline following the November release, for example, prices were on the rise again by late January. Gasoline prices jumped further after the invasion and peaked on March 11 at $4.33 a gallon according to AAA.
Will tapping the reserve lower gasoline prices at the pump?
Boosting the supply of petroleum should lower gas prices for motorists, but there is no guarantee. Futures markets are complex and prices move for many reasons. Even if crude prices do drop, there is no guarantee gasoline prices will follow suit, or do so quickly if they do.
Who created the SPR?
Congress authorized the SPR in 1975, in the wake of the Arab oil embargo, as a buffer against supply shocks from oil exporters. Energy markets, however, have changed dramatically in recent years, as has the country’s use of the reserve, which has a capacity of 714 million barrels. Resurgent U.S. oil production from fracking into shale has made political leaders of both parties less fearful of shortages.
The Trump administration considered selling off some of this oil in 2018 before opting against it. And Congress has started draining the reserve as a way to raise cash to pay for tax cuts and other spending. Under congressional authorization the Energy Department has run seven sales since 2017, unloading more than 60 million barrels, or about 8.6% of what had been in the reserve, according to department figures.
When has oil been released from the reserves in the past?
Since the first barrels were delivered for storage in 1977, oil has been released from the reserves about two dozen times. Many recent sales were those authorized by Congress, and the Energy Department has also run several exchanges after hurricanes and shipping channel closures disrupted domestic supplies.
The U.S. has also opted to release oil in coordination with other countries that keep their own reserves three times: when Operation Desert Storm began in 1991, after Hurricane Katrina in 2005 and at the height of Arab Spring in 2011. The International Energy Agency, a Paris-based energy watchdog, has coordinated those releases among member countries, though state leaders can decide whether to participate.
What happens when oil is released?
Released oil from the U.S. reserves can take as long as two weeks to reach the markets from where it is stored in underground salt domes, which measure as long as 2,000 feet. To get oil out, fresh water is pumped into the bottom of the cylinder, forcing the oil upward, out of the cavern and into pipelines that carry the supply to refineries that convert it into gasoline or other petroleum products.
This story has been published from a wire agency feed without modifications to the text
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