This article contains a correction.
The Obama administration’s decision to release 30 million barrels of oil from the full emergency Strategic Petroleum Reserve should provide an economic boost to the sagging American economy, and help relieve some pressure on American families too. Past SPR sales have reduced oil prices by 10 to 15 percent within a month, which would translate into savings of 25 to 35 cents per gallon at the pump. And every $10 per barrel drop in the oil price will add .1 to .2 percent to GDP. This oil sale should generate at least $2.5 billion for the federal treasury.
Based on the current United States consumption of 380 million gallons* of gasoline per day, lower oil prices could save Americans $95 million to $133 million per day at the pump while oil prices remain lower. This reduction will act like a tax cut for American families. In addition, reducing oil prices by 10 percent below the $95.41 closing price on June 22 would save $9.50 per barrel. This would reduce the amount of money shipped to other countries for oil by $100 million or more per day.
Previous SPR sales also led to swift price drops. A 30 million barrel SPR sale, ordered by President George W. Bush after Hurricane Katrina, was on the market in 17 days and prices dropped 12 percent in a month.
In 1996, 28 million barrels of oil from the SPR were used for “deficit reduction sale[s]” as mandated by the budget agreement between President Bill Clinton and the Republican-led Congress. Three different sales generated $647 million, which would equal $908 million today. At the time, the SPR had “an inventory of less than 600 million barrels,” or less than 83 percent of capacity, while our reserves are at capacity right now. The first of these sales reduced oil prices by 10 percent over a few weeks.
The SPR oil sale must also be accompanied by a robust effort to ensure that the Commodities Future Trading Commission has the needed staff to enforce safeguards to prevent speculators from once again driving up oil prices later this year. Goldman Sachs estimated that speculators added $27 a barrel to the oil price at its 2011 peak—a one-fourth price hike. Unfortunately, the House FY 2012 Agriculture Appropriations bill would cut CFTC funding by 44 percent, which would remove the cops who patrol the oil markets to prevent speculators from driving up prices to make a quick buck.
On February 2, CAP proposed selling 30 million barrels of SPR oil as part of a remedy to oil prices that had risen by $5 per barrel in a week in response to unrest in the Persian Gulf. In “The False Promise of ‘Drill, Baby, Drill,’” we proposed that in addition to selling oil from the Strategic Petroleum Reserve, using some of the proceeds from the sale to pay for public transportation trips would encourage people to drive less and also reduce prices in the short-term.
This fall, the Obama administration can continue helping families save significantly more money while reducing our oil dependence by requiring that cars built in 2025 achieve a fuel economy standard of 60-plus miles per gallon. This would save the average driver $7,500 over the life of the vehicle. Investments in electric cars and natural gas trucks can also reduce oil use and save families money.
Congressional Republicans lost no time voicing opposition to the SPR oil sale despite their general fondness for tax cuts. House Natural Resources Committee Chairman Doc Hastings (R-WA) protested that “The Strategic Petroleum Reserve is intended for situations when there’s a dramatic supply shut down, not to achieve short-term political gain.” Interestingly, Hastings voted forthe Omnibus Fiscal Appropriations for 1996, H.R. 3019, which included a provision to sell SPR oil for deficit reduction although there was no supply disruption at the time. House Energy Committee Chair Fred Upton (R-MI) also criticized the sale, and also voted in 1996 to sell SPR oil for deficit reduction.
Selling SPR oil will save families money, reduce our budget and trade deficits, and boost the economy. Selling this oil will reduce oil prices, however, and mean lower profits for big oil companies because they make more money with higher prices. Perhaps Republican leaders oppose selling this reserve oil because their political benefactors will see their huge profits sink. This is another case of “oil above all,” rather than supporting what’s best for middle- and low-income families.
* Correction, June 23, 2011: This article incorrectly stated the United States currently consumes 380 million barrels of gasoline per day instead of gallons.
Daniel J. Weiss is a Senior Fellow, Christina C. DiPasquale is the Associate Director of Press Relations, and Valeri Vasquez is a Special Assistant for Energy at American Progress.
- Eight Reasons to Release Oil from the Strategic Petroleum Reserve by Daniel J. Weiss