In case of military strike on Syria, US has backup oil
With oil prices jumping at the thought of a looming military strike on Syria, it’s worth recalling what a back-up supply from the US Strategic Petroleum Reserve can and can’t do, Styles writes. The reserve could prove extremely helpful should a military strike on Syria occur.
The SPR Grew Without Buying A Barrel
Although mainly focused on the oil market’s current jitters over Syria, Liam Denning’s Wednesday “Heard on the Street” column in the Wall St. Journal neatly highlights the extraordinary degree to which resurgent US oil production and weaker US demand have boosted the effectiveness of US oil inventories, including the US Strategic Petroleum Reserve (SPR). Without adding a drop — the SPR actually shrank a bit in 2011 — the reserve’s potential to replace daily imports in a crisis has soared as those imports have declined.Skip to next paragraph
Subscribe Today to the Monitor
In the near term this could prove extremely helpful should expected US-led reprisals against the Syrian government result in a regional disruption of oil flows. Longer term, it serves as a further reminder that the existing SPR was designed for another era and is overdue for a major rethink.
An Imperfect Backstop
Having 700 million barrels of oil in federal facilities along the Gulf Coast has tempted presidents and other politicians, who saw opportunities to benefit from using it to attempt to crush periodic gasoline price spikes. However, the current situation comes much closer to the scenarios the SPR was intended to address when it was begun during the Ford administration, to provide a backstop for our vital energy supplies in emergencies involving a physical interruption of supply. When it comes to uses of the SPR, I’ve always been a purist, perhaps because I can recall sitting in gas lines and participating involuntarily in the bizarre “odd-even” rationing-by-license-plate scheme introduced during the oil crisis following the Iranian Revolution in 1979.
Here’s how the benefits of tapping the SPR in an actual crisis have improved, based on the rapid recent drop in US oil imports. In 2007, the SPR could have replaced just over half of our crude oil imports from countries other than Canada or Mexico for 165 days, at its maximum draw-down rate of 4.25 million barrels per day (MBD). With its current inventory and this year’s average crude oil imports through May running at around 7.6 MBD, the SPR could substitute for 100% of our non-North American imports for 163 days. The value of such an insurance policy is rarely appreciated until it is needed.