Still Vulnerable
Proponents of maintaining the stockpile argue that the U.S. is not immune to price volatility, in spite of rising domestic production and declining imports.
“We’re still vulnerable,’’ said Robert McNally, former energy adviser to President George W. Bush and the president of the Bethesda, Maryland-based consulting firm Rapidan Group. “It’s short-sighted and deeply unwise to assume that today’s energy circumstances will be the same over the next few decades.’’
Christopher Smith, who led the Energy Department’s Office of Fossil Energy under President Barack Obama, argues that just the existence of the stockpile has a calming effect on markets. For U.S. refiners, the argument goes, the reserve serves as a kind of insurance policy, promising relief if times get tough.
The problem with that argument is that the U.S. has never established a clear policy for when to release oil, leaving it instead to the discretion of the president.
‘Economic Illiterates’
“We ought to dispose of the Strategic Petroleum Reserve because we’ve never figured out how to use it in a crisis,’’ said Philip Verleger, an economist who led the Treasury Department’s Office of Energy Policy under President Jimmy Carter and is now the head of an eponymous Carbondale, Colorado-based consulting firm. “The economic illiterates at the Energy Department say it works. But they haven’t used it when they needed to.’’
The stockpile has been used when extreme weather events, like Hurricane Katrina, threatened energy infrastructure on the Gulf Coast. It’s only been used once in response to a global emergency, during Operation Desert Storm in 1991. In 2011, the U.S. also released 30 million barrels in response to oil-supply disruption in Libya.
One of its more controversial uses came in September 2000, when Democratic President Bill Clinton released 30 million barrels to lower gasoline prices, a move that critics said was a way to influence the November election.
“We called that the use of the strategic ‘political’ reserve,’’ said McNally, a Republican. Still, he argues that the reserve remains an important foreign policy tool, especially when dealing with other major oil producers such as Saudi Arabia and Venezuela.
Case in point: As the Trump administration weighs banning crude imports from Venezuela as part of a potential sanctions package, White House advisers are considering whether such a move would warrant a release of oil from the reserve. Venezuela sells about 700,000 barrels a day to Gulf Coast refiners, so an embargo could squeeze refiner margins, and even raise gasoline prices. The oil reserve could give the U.S. some cushion.
Herrington, Reagan’s energy secretary, shrugs off the idea. “Venezuela, to me, is small potatoes,” he said. “And the oil from there is not particularly good.”
Article Appeared @https://www.bloomberg.com/news/articles/2017-07-21/u-s-owns-700-million-barrels-of-oil-trump-wants-to-sell-it