Over the past month, as oil prices have climbed, rumors of a release from the Strategic Petroleum Reserve (SPR) have circulated. This week, the G7 released a statement indicating the group’s readiness “to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied.”
Hurricane Isaac makes a release seem more likely, as it has suspended operations of Gulf refineries with a combined refining capacity of 1 million barrels of oil per day, according to the St. Louis Post. Dan Kish of the Institute for Energy Research said on Fox Business Network, “[a release of the SPR] has been done in the past when refineries couldn’t get enough oil because of disruptions in service. This is what the SPR is for, with the idea that it gets paid back when the oil is available. Unfortunately the political releases never get paid back.”
A release of the SPR may keep oil prices from rising dramatically due to the loss of supply caused by Isaac. Generally, “The SPR is likely to be most effective as a short-term device to help bridge a temporary supply shortfall until other sources can become available,” wrote James Hamilton of the University of California, San Diego [Econbrowser]. Some, however, argue that releasing oil form the SPR can sometimes increase oil’s market price.
Andy Black, CEO of the Association of Oil Pipelines, argues the Keystone XL pipeline could offset lost oil access during a storm like Isaac. “When supply of the energy consumers want, and the raw materials workers need, could be disrupted by a tropical storm or hurricane, it becomes even clearer that additional pipeline capacity is needed. Keystone XL is just one of many pipeline projects needed to help connect the American consumer and worker with lower-priced energy,” he told Politico’s Morning Energy.
What is the likelihood of a pre-election release from the SPR? How would a release impact oil prices and availability? What are the long-term costs of short-term relief from high oil prices? Would the Keystone pipeline improve reliability and keep oil prices low?