Nearly all U.S. politicians and energy experts consider the U.S. Strategic Petroleum Reserve (SPR) to be among the country's best weapons against a temporary shortage of oil. Yet debate over what circumstances justify tapping national oil stockpiles is fierce. With sanctions biting into Iran's exports, officials are reportedly weighing whether to draw on emergency reserves. They should look to last year's International Energy Agency-coordinated SPR release, triggered by the collapse of Libyan oil production, for insight into when it makes sense to draw on national oil stocks.
For one thing, policymakers should be under no illusion that tapping public stocks can allow them to dictate prices. Broader market forces can easily overwhelm an SPR release's effect on the global price of oil. In the case of last year's release, it took less than two weeks after the IEA's June 23 announcement of the impending release for Brent crude oil to rebound to its previous highs. Prices did trend downward over the second half of the year, but that slide was due predominantly to a deteriorating outlook for global economic growth, and hence oil demand.
That does not mean that SPR releases are inconsequential. But their primary value is often in helping to keep prices from rising further, not in ensuring they decline. The distinction is subtle but critical. Last year, the additional light sweet crude from the SPR alleviated a serious shortage of that grade of oil in Europe by allowing West African barrels to flow to the Mediterranean instead of the United States, as they typically would. The price premium for low versus high sulfur crude narrowed sharply after the release, reflecting the deterioration of what had been the primary impetus for rising oil prices earlier that year.