As strategic oil reserve is drained to record low levels, is it lowering gas prices?

President Joe Biden’s Administration has presided over an unprecedented drainage of oil from America’s Strategic Petroleum Reserve (SPR) following Russia’s invasion of Ukraine. As of Sept. 19, about 155 million barrels of crude oil, over a quarter of the stock, have been released into the economy, according to the Department of Energy.

The purpose of the historic sale of America’s emergency supply was to lower gas prices. However, the depletion has had a marginal effect at the pump and could moderately weaken American energy security, according to some experts.

The SPR, which dates to President Gerald Ford’s Administration, was enacted as a direct response to the 1973 oil crisis when members of the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo against the United States, resulting in an “acutely strained” economy, according to the State Department.

Upon its creation, four salt caverns on the Texas and Louisiana coasts were designated as SPR locations, and today they can hold up to 727 million barrels, according to the Energy Department.

The primary purpose of the reserve, the world’s largest supply of emergency oil, is to reduce the impact of supply chain disruptions and to fulfill America’s international energy obligations, according to the Energy Department. The reserves have been tapped into multiple times, including in the aftermath of Hurricane Katrina in 2005 and Hurricane Isaac in 2012.

In March, the White House announced the Biden Administration would be “putting one million additional barrels on the market per day on average – every day – for the next six months” in response to “Putin’s price hike at the pump.”

The U.S. consumes about 20 million barrels each day, according to the U.S. Energy Information Administration.

‘Modest’ impact on gas prices

In July, four months after opening the SPR spigots and tens of millions of barrels sold into the economy later, the Treasury Department estimated that the decision, “lowered the price of gasoline by 17 cents to 42 cents per gallon, with an alternate approach suggesting a point estimate of 38 cents per gallon.”

That estimate, given the average retail price for a gallon of gas was about $4.49 in the second quarter of 2022, according to Statista, indicates the SPR release only slightly lessened the price consumers paid.

“The impact of the SPR on gasoline prices tends to be modest,” Lutz Kilian, senior economic policy advisor at the Federal Reserve Bank of Dallas, told McClatchy News. “The SPR is not well suited for managing global oil price risks. That would take a much bigger reserve. [It is] at its best in dealing with short-run supply disruptions such those caused by hurricanes or shipping accidents.”

‘Risky policy’

Beyond slightly lightening the burden Americans pay at the pump, the reduction in federal petroleum reserves also worries some energy policy experts.

“It’s a risky policy,” Kevin Book, managing director at an energy consulting firm, told the New York Times. “This policy can only last until the stockpiles are exhausted, and replenishing the stockpiles would take years.”

Refilling the SPR, a process the Biden Administration announced will begin this fall, will take about three years, according to Bloomberg.

Killian, a leading expert on global oil markets, downplays the role the SPR can play in the event of a major disaster. He emphasizes that the helpfulness of the reserves would depend entirely on the magnitude of the shortfall.

“SPR could play a role and help buy time when oil shipping has to be rerouted in response to a geopolitical crisis,” he said. “It is better to have this flexibility than not to have it. However, we should not expect the SPR to compensate for major oil demand or supply shocks. Even when the SPR is full, it cannot be used in that way.”

Assuming American demand for crude remained relatively constant in the event of an unprecedented crisis, the SPR, when filled to capacity, could, in theory, wholly support the national economy for a little over a month.

However, under current rules, oil can only be pumped from the reserve at a maximum rate of “4.4 million barrels per day for up to 90 days,” according to the Department of Energy.

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