What Trump Could Do With 660 Million Barrels of Oil: QuickTake
(Bloomberg) -- Energy circles are abuzz with talk that U.S. President Donald Trump might tap the nation’s emergency oil stockpile to stabilize pump prices -- and please voters -- in the run-up to November’s midterm elections. The tool at his disposal is the Strategic Petroleum Reserve, set up in the aftermath of the Arab oil embargo in the 1970s as a backup in case of subsequent supply shocks. It’s the world’s largest supply of emergency crude, stored in deep and heavily guarded underground salt caverns along the U.S. Gulf Coast. At present, the reserve totals 660 million barrels.
1. Have presidents tapped the reserve before?
Yes. In 2011, President Barack Obama released 30 million barrels as part of a joint effort with other nations to counter supply disruptions from Libya. In 2005, President George W. Bush released 11 million barrels in the wake of Hurricane Katrina. And in 1991, under President George H.W. Bush, 17 million barrels were released during the first Gulf War. Test releases take place from time to time, as well as limited releases in the form of swaps. Last year, for instance, the Energy Department authorized the release of 5 million barrels to Gulf Coast refineries when Hurricane Harvey wreaked havoc on the region. Such arrangements are designed to address short-term emergency needs, and the crude is repaid, in kind, at a future date.
2. In what circumstances can presidents release stockpiled oil?
That’s pretty much the president’s prerogative. But the 1975 law that established the reserve says a president can order a full drawdown in the event of a "severe energy supply interruption" that threatens national security or the economy. A limited drawdown (up to 30 million barrels) can be ordered in the event of "a domestic or international energy supply shortage of significant scope or duration."
3. Why is this issue coming up now?
The price of crude oil, and of gasoline at the pump, have been rising, pushed up by forces including the collapse of Venezuela’s oil industry and disruptions in Libya. Trump’s decision to re-impose sanctions on Iran could send prices skyrocketing right as American voters start to focus on what party to support in congressional elections in November. Though Trump is pressuring the Organization of Petroleum Exporting Countries to ramp up production, analysts are skeptical his calls will have the intended result.
4. What does a release entail?
The maximum drawdown capability is 4.4 million barrels a day, according to the Energy Department’s website, and it takes 13 days for SPR oil to reach the market after a presidential decision. In reality, recent pipeline reconfigurations and maintenance mean the maximum rate at which it can be drawn down is likely to be less than that, according to analysts. But the mere announcement that the SPR is being deployed could have an immediate, if short-lived, effect on oil prices. Longer-term, much depends on how many Iranian barrels are lost due to sanctions, what OPEC’s response is, and so on. And any impact may only be to stop oil from reaching even loftier heights. “You could be avoiding an increase as opposed to bringing prices down,” said Guy Caruso, a former head of the Energy Information Administration.
5. Is there any way to make a bigger splash?
A drawdown of the U.S. stockpile in tandem with other members of the International Energy Agency would arguably lend any move more legitimacy. “A collective release would have a bigger impact in terms of market perception,” said Antoine Halff, a senior research scholar at Columbia University’s Center on Global Energy Policy in New York. “It’s also much easier to justify politically.”
6. What’s the outlook for the U.S. stockpile?
The domestic shale boom has allowed the U.S. to join the ranks of the world’s biggest oil producers, lending weight to arguments that the emergency reserve is past its sell-by date. It’s been tapped in recent years to help pay government bills ranging from roads to deficit reduction and drugs, and current plans are for the stockpile to be cut almost in half over several years. Speculation that Trump may tap the reserve rebuts the case for doing away with it. “It certainly undermines the argument that we live in an age of abundance where emergency stocks are superfluous,” said Halff.
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