Will the “strategic reserve” succeed in containing oil prices?

With the escalation of the conflict hampering oil exports from the Persian Gulf, member governments of the International Energy Agency agreed to pump 400 million barrels of Emergency crude oil reserves, to mitigate the rise in prices, while this pumping is the largest in the agency’s history.

According to the International Energy Agency, the decision was issued unanimously among member states today, Wednesday. US President Donald Trump had previously expressed reluctance to pump oil from US reserves, describing the rise in energy prices as temporary.

What is the size of global reserve oil reserves?

According to International Energy Agency The 38 member states of the Organization for Economic Co-operation and Development, most of them rich countries, have at least 1.2 billion barrels of oil stored in public reserve storage.

This specialized energy group, based in Paris, which coordinates the operations of discharging oil reserves for OECD countries, has contributed to implementing five similar operations in the past: before the Gulf War in 1991, and after Hurricanes Rita and Katrina in 2005, following the outbreak of war in Libya in 2011, and twice in 2022 in response to war-related unrest in Ukraine.

Billion Reserves in America and China

Among the members of the International Energy Agency, the United States has the largest reserve reserve, consisting of 4 highly guarded sites along the Gulf of Mexico. These deep, massive underground caverns have a capacity to hold more than 700 million barrels of oil.

According to Energy Department data, they currently contain about 415 million barrels, meaning they are only 60% full, after being drained in a record withdrawal by then-President Joe Biden following the Russian attack on Ukraine.

As for China, the world’s largest oil importer, in recent years it has built up what appears to be a larger reserve stockpile. The country possesses about 1.4 billion barrels of Crude oil is in strategic storage, according to estimates from Columbia University’s Center for Global Energy Policy.

Will oil reserves offset the disruption caused by the war?

Oil traders have expressed doubts about that. Even if the maximum withdrawal rate is US Strategic Petroleum Reserve With flows from other members of the International Energy Agency, it may only cover 11 to 16 million barrels of supply lost from the Persian Gulf per day, according to "Citigroup"

The maximum capacity to withdraw the Strategic Petroleum Reserve is 4.4 million barrels per day, according to the US Department of Energy website, and it takes 13 days for the oil from this reserve to reach the open market after a presidential decision.

However, an analysis prepared by the Department of Energy in 2016 indicated that the actual amount may be limited to between 1.4 and 2.1 million barrels per day. During the 2022 oil release following the Russian invasion of Ukraine, the amount of oil released from the Strategic Petroleum Reserve did not exceed 1.1 million barrels per day, according to an analysis of US Energy Information Administration data.

Why was Trump reluctant to exploit US oil reserves?

One argument was that oil markets had sufficient supplies to weather the crisis. US Secretary of Energy Chris Wright said on March 8 that… "There is no shortage" Thanks to the boom in American production.

Part of the Trump administration’s hesitation may have been political; The president and other Republicans have spent years criticizing the Biden administration for withdrawing oil from US reserves, and pumping oil from it could expose them to criticism from Democrats.

There were logistical reasons, too; The Trump administration has sought to replenish the reserve — and the president has pledged to replenish it "Up to its edge" – But the warehouse is not prepared to receive and pump oil at the same time. In addition, the administration stated that the withdrawal process initiated by Biden had damaged the facilities, and that repair work was underway.

When can American presidents pump reserve oil?

Among the powers of the president, according to the 1975 law that established the Strategic Petroleum Reserve, is that the president may order the withdrawal of the entire reserve in the event of "Severe interruption in power supply" Threatens national security or the economy. He may also order a limited withdrawal (up to 30 million barrels) if this occurs "Severe energy shortages, domestic or international, on a large scale or for a long period".

Is America turning to reserves?

Except for temporary responses to domestic oil outages, the United States has only tapped its oil reserves a handful of times before 2022. Biden did so in late 2021, authorizing the release of 50 million barrels as part of a coordinated international effort to reduce rising fuel prices. In 2011, former President Barack Obama released 30 million barrels as part of a joint effort with other countries to confront supply disruptions from Libya.

In 2005, President George W. Bush released 11 million barrels in the wake of Hurricane Katrina. In 1991, under President George H.W. Bush, 17 million barrels of crude oil were released during the First Gulf War.

In 2017, the Department of Energy authorized the release of 5 million barrels for Gulf Coast refineries after Hurricane Harvey wreaked havoc on the region.

Refilling US Stockpiles

Trump has pledged to replenish reserves, but it remains difficult; Last March, when oil prices were around $68 a barrel, Energy Secretary Wright estimated that refilling would cost $20 billion. So far, Congress has given the Department of Energy only $171 million to purchase crude oil, a portion of which the Department is using to purchase about 1 million barrels.

Wright said that the United States is considering "Innovative ways" To refill oil reserves, private companies will provide oil. This was a clear reference to the use of what is called a convention "In-kind return"under which the United States accepts oil and gas from producers in lieu of cash royalties on federal energy resources.

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