WASHINGTON — The Obama administration pitched its decision Thursday to release 30 million barrels of oil from emergency stockpiles as a way to bolster the U.S. economy, soothe consumers’ concerns and make up for a decline in crude supplies from Libya.
But Republicans decried the move as purely political and poorly timed, given that gasoline and oil prices are down from peaks a few weeks ago, and some independent analysts argued that whether justified or not, the extra oil in the market won’t have much effect at the pump.
The announcement of the sale of oil from the U.S. Strategic Petroleum Reserve coincided with a 30 million-barrel release by other International Energy Agency member countries and sent oil prices to a four-month low in trading Thursday.
The administration insisted the move was essential to restoring stability to the market and offsetting the loss of 1.5 million barrels of high-quality light, sweet crude oil daily from Libya during the summer driving season.
“We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery,” said Energy Secretary Steven Chu.
The U.S. coordinated the action with the International Energy Agency, whose 28 member countries pledged to release a total of 60 million barrels of oil in coming months – half from the U.S., 30 percent from Europe and 20 percent from Asia.
IEA Executive Director Nobuo Tanaka said the decision – only the third like it in the agency’s nearly four-decade history – would help ensure “a soft landing for the world economy.”
Effects hard to calculate
Daniel J. Weiss, a senior fellow at the Center for American Progress, a liberal think tank, said that if stockpiled oil sales do reduce gasoline prices, it “will act like a tax cut for American families.”
Weiss estimated that the sale of U.S. stockpiles should generate at least $2.5 billion for the federal treasury, while lowering gasoline prices 25 cents per gallon, based on previous reserve releases.
But the short-term and long-term effects on gasoline prices are tough to calculate, said Craig Pirrong, a finance professor and commodities expert at the University of Houston.
“Releasing oil from storage increases supply today but decreases potential supply tomorrow,” Pirrong said. There may be “some initial relief, perhaps, but it’s not a long-term palliative.”
Former Bush administration energy official Randa Fahmy Hudome also was skeptical that the Strategic Petroleum Reserve sale would lower gasoline prices, because, she said, the market is already well supplied.
“The only thing I can assume is that this was done for a political need to satisfy consumers,” she said. “It creates a slippery slope. The SPR is supposed to be used for an emergency situation.”
She questioned whether gasoline prices constitute an emergency. “Gas prices are high, yes,” she said, “but they’re not so unbearably high that this is the only thing affecting the economy today.”
Stock markets have been down broadly amid poor U.S. job figures, and concerns about softening demand already have sent benchmark crude down from more than $110 a barrel in late April.
After Thursday’s SPR announcement, West Texas Intermediate crude for August delivery fell $4.39 to $91.02 in trading on the New York Mercantile Exchange.
Amy Myers Jaffe, a senior fellow at Rice University’s Baker Institute of Public Policy, said the release is both politically and economically motivated but is still the right thing to do.
“Given the instability in the Middle East it is important to signal that the SPR is on the table and that a supply crisis can be avoided,” Jaffe said.
Because Libyan unrest has disrupted deliveries of the light sweet crude preferred by most refiners, a reserve release was the only way to inject that high-quality oil into the market, Jaffe said.
The stockpiled oil could be in the hands of refiners in less than two weeks, following an Energy Department auction.
The government historically has contacted refiners to gauge interest before a sale, companies said they heard nothing ahead of Thursday’s surprise announcement.
Buyers not lined up yet
Some of the nation’s biggest refiners, including Shell, Exxon Mobil Corp. and BP – citing competitive concerns – declined to say if they would they would be interested in buying the stockpiled oil. Valero Energy said it was still getting information about the plan.
U.S. officials said they had been in talks with IEA countries about releasing reserves for some time.
The discussions may have picked up earlier this month when members of the Organization of the Petroleum Exporting Countries angered Western nations by refusing to boost production.
The reserve sell-off now is meant to send a message to the cartel, said U.S. Rep. Gene Green, D-Houston.
“The joint move sends a message to OPEC that we will not be held captive by their pricing,” Green said.
Even backers uncertain
Even some supportive lawmakers questioned the timing of the move, given that oil and gasoline prices have backed off recent highs.
Sen. Jeff Bingaman, D-N.M., noted that “the decision would have been more timely if made when the disruption in Libyan oil supplies first occurred.”
Republicans said reducing the stockpiles could weaken U.S. security in case of a natural disaster or other market-disrupting emergency.
“Tapping the SPR simply to manipulate oil prices defeats the purpose of the reserve,” said Rep. Pete Olson, R-Sugar Land, adding that it “looks like a politically motivated move to avoid implementing a sound energy policy that will reduce our dependence on Middle East oil.”
Republican Sen. John Cornyn of Texas called the SPR release “a public relations strategy.”
Established in the 1970s to protect the U.S. economy from price spikes caused by oil supply disruptions, the Strategic Petroleum Reserve now contains about 727 million barrels of crude stored in underground salt caverns in Texas and Louisiana.
The U.S. has sold oil from the reserve only rarely, most recently in 2005, when Hurricane Katrina damaged Gulf Coast production facilities, pipelines and refineries.
The 30 million-barrel sale announced Thursday represents less than two days of the nation’s oil and petroleum consumption – almost 20 million barrels a day last year, according to the Energy Information Administration.
Brett Clanton and Tom Fowler contributed from Houston.