Will Obama Open the Strategic Oil Reserve?

by InvestorPlace Staff | February 27, 2012 4:53 pm

In spite of warning during Saturday’s weekly radio address that “there are no quick fixes” for America’s energy woes, President Obama may be forced to tap America’s Strategic Petroleum Reserve to stem rising gasoline prices, reports Politico.com[1]. Pump prices in the U.S. have sharply escalated, and  concerns are growing that they could stymie a mounting economic recovery.

While Obama didn’t mention the SPR explicitly during his latest address, speculation is mounting that he may ultimately tap the stockpile in light of the economic standoff with Iran. Tensions around a European embargo of  Iranian oil have recently driven up crude prices, and  the diplomatic tension shows little sign of defusing any time soon.

Tapping the SPR remains a controversial proposal. Under the statute established in the mid-1970s, the reserves can be released under conditions where a clearly defined supply disruption exists. However, the statute also allows tapping the SPR if “a severe increase in the price of petroleum products has resulted” and “such price increase is likely to cause a major adverse impact on the national economy.”

Should Obama ultimately choose to release America’s reserves, the government could sell 500,000 barrels of surplus crude a day for  up to 18 months — potentially lowering the cost of traded petroleum. This outcome is hardly guaranteed, of course, because the international energy markets are notoriously unpredictable.

Nevertheless, the volume of the U.S. SPR far exceeds[2] that established by international relations, and the U.S. can easily afford to release some of its reserves. Whether this makes economic or political sense is yet uncertain.

  1. Politico.com: http://www.politico.com/news/stories/0212/73279.html
  2. far exceeds: http://www.washingtonpost.com/blogs/ezra-klein/post/does-obama-have-the-power-to-reduce-gas-prices/2012/02/23/gIQA5TAqVR_blog.html

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