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Explainer-What is the SPR, the emergency oil stash Biden is tapping?

Explainer-What is the SPR, the emergency oil stash Biden is tapping?
Explainer-What is the SPR, the emergency oil stash Biden is tapping?   -   Copyright  Thomson Reuters 2021
By Reuters

By Timothy Gardner and Jessica Resnick-Ault

NEWYORK – The White House said on Tuesday it would make 50 million barrels of oil available from the U.S. Strategic Petroleum Reserve to help cool oil prices.

The release, a combination of a loan and a sale from the reserve, was being made in tandem with releases from strategic reserves by China, India, South Korea, Japan and Great Britain, the White House said.

Such a move may not have a long-term impact on dampeningU.S. oil prices that hit a seven-year high above $86 a barrel in late October, analysts say.

The release could allow the Biden administration to fend off criticism ahead of the 2022 midterm elections that it has done little to counter rising prices. By moving in tandem with other big consumers like China and Japan, it could also allow Biden to say he took action after Saudi Arabia and Russia, members of the OPEC+ production group, resisted U.S. calls to pump more oil into global markets.

WHYWASTHESPRCREATED?

The United States created the SPR in 1975 after the Arab oilembargo spiked gasoline prices and damaged the U.S. economy.Presidents have tapped the stockpile to calm oil markets duringwar or when hurricanes hit oil infrastructure along the U.S.Gulf of Mexico.

HOWMUCHOILDOESTHESPRHOLD?

The reserve currently holds about 606 million barrels indozens of caverns in four heavily guarded locations on theLouisiana and Texas coasts. That is enough oil to meet U.S.demand for more than a month.

The country also maintains small heating oil and gasolinereserves in the U.S. Northeast.

WHATOTHERCOUNTRIESHAVESTRATEGICRESERVES?

The United States is responsible for about half of the world’s strategic petroleum reserves. Besides the United States, the other 29 member countries in the International Energy Agency, including the United Kingdom, Germany, Japan and Australia, are required to hold oil in emergency reserves equivalent to 90 days of net oil imports. Japan has one of the largest reserves after China and the United States.

China, an associate member of the IEA and the world’ssecond-leading oil consumer, created its SPR 15 years ago andheld its first oil reserve https://www.reuters.com/world/china/china-tests-oil-clout-battles-inflation-with-first-oil-reserve-auction-2021-09-15 auction in September. Another IEA associate member, India, the third-biggest oil importer and consumer, also maintains a reserve https://www.reuters.com/world/india/exclusive-india-starts-selling-oil-strategic-reserves-after-policy-shift-2021-08-17.

Overall, OECD governments held more than 1.5 billion barrels of crude as of September, according to the IEA.

CANTHOSECOUNTRIESRELEASEOILALL AT ONCE?

U.S. presidents can coordinate a SPR release with drawdownsin reserves by other IEA members at the same time. A potentialrelease involving China and India would be the first instance inwhich the United States coordinated a release that included those two nations. The IEA is not involved with this release, because the IEA‘s rules state that it is not meant to intervene to affect prices.

HASTHEUNITEDSTATESDONETHISBEFORE?

Yes. The United States has released oil in conjunction with the IEA on three occasions. It has also released crude – usually in the form of a loan – after localized disruptions like hurricanes or pipeline shutdowns a number of times.

HOWDOESTHESPRGETOIL TO MARKET?

Because of its location near big U.S. refining orpetrochemical centers, the SPR can ship as much as 4.4 millionbarrels per day. It can take only 13 days from a presidentialdecision for the first oil to enter the U.S. market, accordingto the Energy Department.

Under a sale, the Energy Department usually holds an onlineauction in which energy companies bid on the oil. Under a swap,oil companies take crude but are required to return it, plusinterest.

U.S. presidents have authorized emergency sales from the SPRthree times, most recently in 2011 during a war in OPEC memberLibya. Sales also took place during the Gulf War in 1991 andafter Hurricane Katrina in 2005.

Oil swaps have taken place more frequently, with the lastexchange held in September after Hurricane Ida.