Strategic Oil Reserve Is for Emergencies, Not Electionsby
There are few things a U.S. president hates more than gasoline at $4 a gallon, especially with an election little more than two months away.
This might explain why President Barack Obama’s administration is toying with the idea of releasing oil from the Strategic Petroleum Reserve, an underground reservoir that can store 727 million barrels of crude oil in salt caverns in Texas and Louisiana. Gasoline prices have risen to about $3.75, up 40 cents in the past two months, near the electoral trouble zone.
The causes of the rise are varied. Economic sanctions on Iran have reduced world oil supplies, providing one rationale floated this month by the White House for dipping into the reserve. An explosion at a Venezuelan oil refinery provided another before Hurricane Isaac came along to underscore the point. As of Tuesday afternoon, Isaac had temporarily closed refineries representing of U.S. production.
The reserve is supposed to be used only in the event of a “severe energy supply interruption” or “domestic or international energy supply shortages of significant scope or duration.” None of the current disruptions meet either standard. Even the International Energy Agency, which helps manage global energy supplies and usage, said there is no need to tap crude reserves at this point.
A release would probably be ineffective in any event. The U.S. sold 30 million barrels from the stockpile in mid-2011 to offset global disruptions amid the ouster of Libya’s Muammar Qaddafi. Gasoline prices retreated after that release, which was coordinated with the 27 other nations in the IEA. But the price at the pump declined by only 2 percent, for just a week, before rising again.
Gasoline prices are a tempting target for presidential intervention because so many other economic indicators are stalled or going in the wrong direction. Unemployment remains stuck at more than 8 percent, economic growth this year will probably be a dispiriting 2 percent and housing continues to be the patient that won’t get well. More discouraging news arrived Tuesday: Consumer confidence in August had the biggest decline in 10 months.
Obama is understandably concerned that Republicans will use higher gasoline prices as another cudgel with which to batter him at their party’s convention this week. That’s politics. The truth is, no president can do much in the short run about gasoline prices, which rise and fall largely based on global supply and demand. Exploiting the nation’s emergency oil reserves won’t alter that fact. We hope Obama takes his lumps and sits tight.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at firstname.lastname@example.org.