How releasing federal oil reserves affects the price at the pump
AYESHA RASCOE, HOST:
War in Ukraine and sanctions on Russia have put fear in global oil markets, causing already high energy prices to hit a 14-year high. And Americans are paying for it at the pump. To try and bring down prices, President Biden announced the U.S.'s largest ever emergency release of oil - 180 million barrels over six months - from the country's Strategic Petroleum Reserve. To understand the effects this plan could have, we are joined by Kevin Book. He's the managing director at ClearView Energy Partners and a member of the National Petroleum Council, which advises the secretary of energy on these types of decisions. Kevin Book, welcome.
KEVIN BOOK: Good to speak with you.
RASCOE: So, you know, in a prior life, when I was an energy reporter, I talked with you a lot, Kevin, about this very issue - the Strategic Petroleum Reserve. But for those that don't have that history, what is the Strategic Petroleum Reserve, or SPR, and why do we have one?
BOOK: Ayesha, the SPR is four sites in the Gulf of Mexico where hundreds of millions of barrels of crude oil - so oil that will be refined into gasoline in refineries - is stored for emergency use. It was created in the 1970s in response to the Arab oil embargo, and it now contains about 565 million barrels of oil.
RASCOE: When has the federal government used the SPR in the past? I mean, obviously, there are different schools of thought on when it should be used, but is there a legal obligation to use the SPR only in emergencies?
BOOK: Well, Ayesha, there's an emergency authority to draw the SPR down in the event of a severe energy interruption, and there's also what they call a non-emergency authority - anticipating that there could be an interruption. The emergency drawdown authority is what President Biden is using for the first part, at least, of the 180. But on other occasions, they have also used non-emergency authority. And there are exchanges. The SPR can be used to lend oil to refiners that need oil when they're short. So there's really three different ways to get oil out of the reserve.
RASCOE: The SPR will release about a million barrels of oil a day over the next six months to try to lower global energy prices. Like, put this in perspective. Like, this has never been done, right?
BOOK: Nothing at this scale. The second biggest release ever announced - that was in November, and that was for 50 million barrels. This is unprecedented in size and scale. And actually, Ayesha, it's a little bit unusual for a president to come out and say it's being done to lower the price. Biden said that also in November. But historically, even when it was being done to lower the price, presidents and secretaries of energy didn't usually admit it.
RASCOE: So with this type of release from the Strategic Petroleum Reserve, will it help dramatically lower prices? Will the price of gasoline get to, like, $2 a gallon?
BOOK: It's unlikely to happen from this release. It might happen if enough production comes on stream from the U.S. and also from OPEC and if everything goes back to normal when it comes to doing business with Russia and the world buying Russia's oil. Right now, none of those three things are going to happen instantly, and the SPR isn't going to be enough to close the gap in inventories or the gap between supply and demand over the long haul. And so if you look at what we saw in market movement, we're talking about 15 cents or so per gallon in raw oil price movement. And that'll take a little while to filter through.
RASCOE: So about 15 cents less. That doesn't seem like a huge savings. I mean, do you think that this action is about stabilizing the market or is this an act by a president to kind of show, I am doing something. I am trying to help with gasoline prices.
BOOK: (Laughter) Ayesha, you and I have been talking for long enough and you know politics well enough from all you've done...
RASCOE: (Laughter) Yes.
BOOK: ...To know that this isn't completely apolitical.
RASCOE: Oh, yeah.
BOOK: There is a market side, and the market side is meaningful. Filling half the gap in inventories will put a lid on prices, even if it doesn't lower them that much. But showing the American public that you've taken unprecedented action - that's pretty important when we're coming up against congressional midterm elections.
RASCOE: Yeah. Is there a concern about doing something on this level in case of, you know, a future crisis?
BOOK: Well, the SPR is, at the end of the day, an insurance policy for the U.S. economy. And so the question is, are you going to spend all of your insurance payout in one go? What if we have another oil crisis? There's always a concern about that. The law says that when they sell oil, they have to use the proceeds to buy it back within a year. That may be at a lower price, in which case there is more oil coming back than went out. Good news for the American consumer. Good news for our insurance policy. Or it may be at a higher price, in which case there could be less.
RASCOE: That was Kevin Book, managing director at ClearView Energy Partners. Thank you so much for joining us today.
BOOK: Thanks for having me.
[POST-BROADCAST CORRECTION: This story says that when oil is sold from the Strategic Petroleum Reserve, the proceeds must be used to buy it back within a year. In fact, that requirement applies only in certain situations.] Transcript provided by NPR, Copyright NPR.