What History Tells Us About the Strategic Petroleum Reserve
As the president and many conservative congressional leaders rally around drilling in the protected Outer Continental Shelf—a “solution” that would have no effect on oil production until 2030—Americans are waiting for a solution that will help them make ends meet now.
That solution is selling a small portion of the oil stored in the Strategic Petroleum Reserve.
The Strategic Petroleum Reserve currently holds 706 million barrels of oil and is at 98 percent capacity. By releasing 50 million barrels of oil over 100 days—500,000 barrels a day—President George W. Bush could likely reduce oil prices by anywhere from 5 to 33 percent. And the reserve would still be over 90 percent full.
How do we know releasing oil form the reserve will dramatically reduce oil prices? Because it has in the past.
After Hurricane Katrina, President Bush announced that he would be releasing 30 million barrels of oil. One day later, the price of oil had already decreased by 5.2 percent. Two weeks later, when the first oil was delivered for refining, the price had dropped 9.5 percent. The decline in prices was even more dramatic after President George H. W. Bush announced that he would release 34 million barrels of oil on the eve of the first Gulf War. The next day, oil prices dropped 33.4 percent. And one, three, and six months later, prices were still more than 30 percent less than they were before the war.
By averaging the percent reductions in the price of oil immediately after each of these release announcements, we can estimate that the price of a barrel of oil could drop by anywhere from 5.2 percent to 33.4 percent, or an average of 19.3 percent. That means, if oil is $130 a barrel at the time of the announcement, the cost of a barrel of oil could drop down to about $104.91 a barrel—or anywhere from $86.58 to $123.24 a barrel—within days. And this decrease should have staying power. Six months after the Hurricane Katrina and Gulf War release announcements, prices were still 11.6 and 35.8 percent below where they were before the announcement respectively—an average of 23.7 percent below. This means that oil prices could decline, and stay at approximately $99.19 a barrel—or anywhere from $83.46 to $114.92 a barrel—six months later if President Bush announced a release today.
Drilling would take decades to bring relief, and only minimal help at that. But introducing more oil to the domestic market can pop the speculative bubble that drives up prices, help reduce the strain on the worldwide market, and deliver fast help to struggling Americans—all while bringing in over $4 billion in profit for the federal government that could be used to fund home weatherization programs, the Low Income Home Energy Assistance Program, or even energy efficiency research, development, and deployment.