Obama to Tap Federal Reserve
Over the next 30 days, President Obama will be releasing 30 million barrels of oil from the Strategic Petroleum Reserve (SPR). The administration hopes that this influx of supply will bring gas prices down. The Obama administration has also not stated that this would be the only release, instead leaving the door open:
“At the end of the first 30 days of action by the IEA members, we will review the results,” a senior administration said. “The U.S. stands ready to do more if necessary to address this issue.”
The reserve has only been tapped twice in the past 20 years, and those were for national emergencies. The first release came in 1991, after the first airstrikes in Iraq and the second release was in 2005, after Hurricane Katrina disrupted gulf oil production.
But President Obama’s decision seems more to do with his next election than an actual crisis. Gasoline prices – while still high – have been steadily dropping, in part thanks to a slowing economy. We have not suffered a crisis. The President is just hoping gas prices continue to ease and spur a bit of job creation. According to House Majority Whip Kevin McCarthy (R-CA):
“Frankly, it’s pathetic that Democrats not only block domestic energy production at every turn, President Obama is now drawing down on our nation’s ‘strategic’ oil reserve which is intended for national emergencies, not as a political tool when a President is feeling heat over high gas prices,”
The administration claims that this is to bolster the market due to the loss of oil from the conflict in Libya. Only .6 percent of our imported oil comes from Libya, about 70,000 barrels a day. On the other side of the pond, Europe received the bulk of Libyan oil. A March 2011 Congressional Research Service Report stated:
“… a shortage does exist in the sense that Libyan exports of light, sweet crude oil, favored by European refiners to produce clean diesel fuel, have fallen. It is not likely that heavier, sour crude oil produced by Saudi Arabia is a perfect substitute for lost Libyan supplies. As a result, European prices of crude oil have risen more than U.S. prices. If the United States drew light, sweet crude oil from the SPR in sufficient volume, it is possible that competition between U.S. and European refiners for available oil supplies could moderate competing demands and have some effect on price. Since prices in Europe rose the most due to unrest in the MENA, it is likely that any moderating in price due to a release of light, sweet crude from the SPR would occur in the European market with only a smaller effect in the United States.”
So at best we will see a minimal price drop from this, and when prices don’t drop as dramatically as President Obama thinks they should in order for him to get re-elected, it seems highly likely that the President will tap the reserve even more.
What he should do that would not only flood the market but also keep our emergency oil source in-tact for actual emergencies, would be to allow domestic oil production like expediting permitting processes for new oil and gas wells, reinstating the cancelled lease sales in the Gulf, Virginia and Alaska; allow oil and gas production in the Alaskan National Petroleum Reserve and expand onshore oil and gas leasing on federal lands.
If the President did these things, we could protect our reserve for real emergencies and increase our own domestic oil production, giving us a much bigger price drop, reduce our dependence on imported oil and create American jobs. Imagine that.