More than a month after the Obama administration said it would tap the country’s emergency oil reserve to try to combat supply disruptions in the Middle East, gas prices at the pump actually have risen 10 cents.
President Obama had hoped the move, coming at the onset of the summer driving season, would temper the loss of supplies due to the ongoing civil war in Libya. Working with international allies, the U.S. said on June 23 that it would release 30 million barrels of oil over 30 days, while other countries with strategic reserves agreed to release another 30 million, in staggered sales during July.
And prices at the pump did dip, at first, from a nationwide average of $3.61 down to $3.55, according to AAA. But by last week, they had rebounded and the price per gallon stood a dime higher than when the administration first made its decision.
“Although it helped initially to pull down prices it was probably too little,” AAA Mid-Atlantic spokesman John Townsend said, pointing out that the nation consumes as much as 20 million barrels of oil a day. “This is just a drop in the bucket.”
Prices may be about to see some relief, though for unwelcome reasons. Last week’s stock market drop and fears of the lingering sour economy have already begun to put downward pressure on oil, which analysts said will translate to lower pump prices — potentially trumping even the administration’s oil release.
The Obama Energy Department had resisted calls earlier this year to tap the Strategic Petroleum Reserve, but reversed course in June, saying its release of 30 million barrels from the nation’s emergency stockpile was intended to address an estimated loss of 1.5 million barrels a day of light sweet crude in Libya. The department said it has met that goal.
“We believe that the coordinated release of 60 million barrels of oil by partners around the globe, the majority of which will continue to enter the market over the coming month, has played an important role in addressing the oil supply disruption resulting from the situation in Libya,” Energy spokesman Damien LaVera said. “The United States will continue to closely monitor oil market conditions and is prepared to take further action if needed.”
Even as the administration cited the need to manage supply disruptions in its June 23 announcement, it nevertheless noted that prices were “significantly higher” ahead of the summer driving months of July and August than they had been prior to the Libyan unrest.
For its part, the International Energy Agency — a group representing 28 of the world’s top oil-consuming countries — in late July decided against releasing additional supplies into the market, citing a rise in OPEC oil production despite the situation in Libya.
Established in response to the 1973-1974 oil embargo, the SPR is stored in underground caverns along the Texas and Louisiana Gulf coasts. Presidents have the authority to access it at their discretion.
Prior to this summer, the U.S. last tapped the SPR in response to Hurricane Gustav in 2008, though that action was technically an “exchange” because the oil companies later resupplied the stockpile after the disruption. The most recent emergency sales were after Hurricane Katrina in 2005 and amid the 1991 Gulf War.
The latest drawdown, which officials expect to be completed by the end of August, will leave the SPR with about 700 million barrels.
Critics questioned the timing and effectiveness of the move, saying it was too little to make a dent in world supplies and also drains the strategic reserve, leaving it less ready for a major emergency.
“The typical use and the reason the Strategic Petroleum Reserve was used in the past was when there was a direct threat to world oil supplies or something like a hurricane,” said Dan Kish, senior vice president for policy at the Institute for Energy Research. “It’s like one of those fire extinguishers that says ‘break glass in case of emergency.’ [The Obama administration] decided to be the high-school delinquent who broke the glass so he could spray the fire extinguisher at his buddy.”
If the administration really wanted to send a reassuring signal to oil markets, Mr. Kish said, it should open up currently off-limits areas in Alaska to oil drilling and speed the permitting process of projects like the proposed extension of the Keystone pipeline, which transports oil from Canada to refineries in the U.S.
As evidence, he noted the price of oil dropped more than $9 a barrel as former President George W. Bush was announcing on July 14, 2008 an end to the presidential moratorium on drilling. Within two weeks, the price was down by $22.
Environmental groups say the reality of the global oil marketplace means there are few things any president can do in the short term to tamp down on prices. Steps like increasing fuel-efficiency standards — something Mr. Obama did just this month — would be far more effective in weaning consumers off of oil in the long run, according to Deron Lovaas, federal transportation policy director at the Natural Resources Defense Council.
“Once we’ve dealt with efficiency and making the most of this resource, you’ve therefore bent the demand curve so to speak,” he said. “Then you look at what alternatives are scaleable.”