Trump is now considering tapping the US strategic petroleum reserves (“SPR”) in an attempt to lower oil prices in the run up to the US midterm elections; logic being that this will translate into lower prices at the pump. However, his administration may be wrongly conflating the two with no guarantee that a release of SPR will lower gasoline prices.
A release of SPR crude will likely do little to alleviate pump prices. US refiners are already running at near full capacity and additional crude will have limited ability to be absorbed and converted to gasoline domestically. In fact, additional crude on the market will likely depress WTI and increase the profits of the refiners rather than the benefits trickling through to the pumps. Furthermore, the SPR holds light crude whereas the feed slate for US Gulf refiners is typically heavy crude from South America.
The SPR was established in 1975 following the Arab oil embargo in 1973. The US, together with 28 other countries, are required by the International Energy Agency to hold no less than 90 days of import cover measured against the previous year’s net imports. It is designed to meet domestic demand in the case of supply disruptions. In the US, the SPR is held across four sites on the Gulf Coast with a total of 660mmbbl of mostly light crude. They can be released with a 13-day window once the POTUS gives the decision.
