Steffy: Tapping oil reserve a matter of smoke and mirrors

As Hurricane Isaac churned toward the Louisiana coast last week, roiling oil markets, the Obama administration again floated the possibility of tapping the Strategic Petroleum Reserve.

Releases from the reserve have become the political equivalent of cranking the levers behind the curtain in Oz. It looks impressive, but it doesn’t really do anything.

“I don’t see the rationale,” said William Arnold, a professor of energy management at Rice University. “There are no unusual supply disruptions at the moment.”

The bigger concern, with a presidential election looming, is gasoline prices. The average price nationally for a gallon of regular unleaded has risen more than 9 percent in a month, to $3.83 cents from $3.50 cents, a record for a Labor Day weekend, according to the AAA auto club.

The White House has had a reserve release on the table since the European Union imposed a ban on Iranian oil earlier this year. More recently, oil prices have risen amid fears that Israel might launch a military strike against Iran’s nuclear program or that the unrest in Syria could lead to disruptions of oil supplies in the Middle East.

Enter Isaac. The storm’s path caused the temporary shutdown of more than 90 percent of the oil production in the Gulf of Mexico, and caused the delay of tanker deliveries of crude to the region’s refineries.

That sounds significant, but the shutdown was temporary, and by Thursday afternoon, oil prices had fallen below Monday’s closing price.

A bigger impact is being borne by Gulf Coast refineries, which also shut down or curtailed operations ahead of the storm. At least one in Louisiana was partially flooded.

That may crimp gasoline supplies and lead to higher prices in the coming weeks, but it also means releasing more crude will do little to affect the price at the pump.

Arab oil embargo

The Strategic Petroleum Reserve was created after the Arab oil embargo of the 1970s as an insurance policy against significant supply disruptions – those that could leave the U.S. with limited supplies of oil.

In recent years, though, it has become a political balm for high pump prices.

“It’s no accident or surprise that the SPR is a political tool. It was a political response to a political act,” said Bruce Beaubouef, the Houston-based author of “The Strategic Petroleum Reserve: U.S. Energy Security and Oil Prices 1975-2005.”

Even in cases where President Barack Obama and his predecessors have released reserves, it’s had little effect at the pump. Four releases in the past eight years were actually followed by higher pump prices, according to a recent analysis by Bloomberg News.

Last year, Obama joined other oil-consuming countries in releasing 60 million barrels to offset production from Libya disrupted by the country’s upheaval. Prices bounced back to their pre-release level within days.

Since the reserve was created, the nature of oil markets has changed. These days, more countries produce oil, and the market can respond more quickly to supply disruptions.

At the same time, the rise of the futures market means prices react immediately to any geopolitical event, even if production isn’t affected. In recent weeks, for example, the possibility of an Israeli attack on Iran drove prices higher, even though production remained unchanged.

Oil shortages rare

“In today’s modern oil economy, you rarely have shortages, but you can and do have price increases,” he said.

While recent increases in domestic oil production have reduced the need for the reserve even further from a supply standpoint, Arnold and Beaubouef agree it still serves a purpose.

“The fact that the SPR may have been misused for political ends doesn’t necessarily mean that it has lost its strategic value,” Arnold said. “Having the ability to tap that resource even for just a few weeks could settle markets and provide stability.”

In the meantime, it serves as convenient political tool for a president battling a tough economy with an election two months away.

Loren Steffy, loren.steffy@chron.com, is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. Follow him online at blog.chron.com/lorensteffy, www.facebook.com/LorenSteffypage and twitter.com/lsteffy.