Key takeaways
- After releasing substantial reserves in 2022, the United States’ strategic petroleum reserve remains near its lowest level in four decades.
- That leaves the United States with less room to manage oil and gasoline prices as tensions rise in the Middle East.
- However, as 2022 has shown, the release of supplies from the reserve has limited capacity to affect the sprawling global energy market.
If the current unrest in the Middle East worsens, American consumers probably shouldn’t rely on a familiar government tool to mitigate the potential impact on the gasoline price they pay.
The U.S. government created this tool, the Strategic Petroleum Reserve, in 1975 to maintain an emergency reserve of several hundred million barrels of oil. But it is currently far from this amount.
In fact, since President Biden authorized the government to sell the reserve to combat rising oil prices after the Russian-Ukrainian conflict began in 2022, it has been emptier than it has been in nearly of four decades.
The vagaries of global oil markets and the complexities of the U.S. refining industry have, at best, demonstrated that SPR publications have a somewhat nebulous impact on U.S. oil and gasoline prices.
Nevertheless, the historically low level of the SPR means that the US government has limited room to maneuver to deal with any market disruption caused by escalating hostilities in the Middle East – despite the insistence of the Biden administration so that the United States can once again draw on its reserves.
Why talk about the strategic oil reserve now?
Oil prices tend to respond quickly to global conflicts, especially those involving the world’s major crude producers, such as Russia and almost every country in the Middle East.
Brent crude rose 2% immediately after the Hamas attack on Israel in October last year and has remained volatile since, although some analysts believe the global oil market was already to blame for rising tensions in Middle East.
This does not mean, however, that any new developments or even escalation, if they were to occur, could not alter existing price dynamics.
There are simply not enough strategic oil reserves
If oil prices suddenly spike and stay high, in theory, strategic oil reserves should help. However, a severely depleted reserve may not have much to offer.
The SPR contains 365.7 million barrels of crude oil as of April 19, 2024, according to the most recent data available. Although this figure has been increasing in recent months, it is down 38% from 593.7 million barrels at the end of 2021, and about half of the record level of 726 million barrels it maintained between late 2009 and early 2011.
The United States consumes approximately 20 million barrels of oil each day, which represents approximately 20% of the world’s daily consumption. Even though the SPR remains the world’s largest known emergency reserve, this means that existing SPR supplies would only cover 18 days of the United States’ oil needs.
Can the strategic oil reserve really help to lower prices?
Even if the reserve had more to offer, it is difficult to determine to what extent or how quickly the release of the SPR may have lowered prices at the pump in the past.
For example, prices for Brent crude and West Texas Intermediate (WTI) crude increased when the Russian-Ukrainian conflict began in February 2022, with the monthly average for the following month almost doubling from the previous year.
Between March and December 2022, the United States sold between 10 and nearly 30 million barrels of oil from its reserves each month, in an effort to stabilize prices.
Spot prices for West Texas Intermediate (WTI) crude, the pricing benchmark in the United States, reached an all-time high of $120 per barrel in early June 2022, three and a half months after the conflict began. It only returned below the pre-conflict level in early September.
U.S. gasoline averaged an all-time high of $4.93 per gallon in June 2022, up 48% from January, even as the SPR sold 100 million barrels in the first half. Gas prices averaged above $3.69 per gallon, about 40 cents higher than before the conflict, until December 2022, when they fell to $3.21.
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