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Analysis of effectiveness of Strategic Petroleum Reserve releases

September 21, 2012

Blake Clayton, the Energy and National Security fellow at the Council on Foreign Relations, has conducted an analysis of the 2011 release of reserves from the SPR and has some recommendations for policy makers as they consider another release this fall:

– 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 domestic price of oil. But that does not mean that SPR releases are inconsequential. Their primary value, though, is often in helping to keep prices from rising further, not in ensuring they decline.

– An SPR release aimed at lowering prices is hardly a free lunch. Yes, it can stop the bleeding for a time—but once the sharks smell blood, it can make matters worse.

– The advisability of an SPR release should be measured by its ability to lessen the economic pain of a significant supply disruption. True, the magnitude of the oil lost (or “likely to become” so, according to the 1990 amendment to the Energy Policy and Conservation Act, or EPCA) is a necessary condition for an SPR release. But the shortage’s likely impact on the national economy is another vital variable for policymakers to keep in mind. The wording of the 1975 EPCA, which first established the SPR, makes this clear. It’s not just about barrel counting; the economic context, and what (if anything) an SPR release can do to help, should be a major part of a drawdown decision.

We need to point out once again that there is already a significant disruption – the total stock of distillates have been below the 5 year average all summer long.  If anything, the release should have come weeks or months ago:

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