In March 2022, President Biden announced that he would authorize the release of up to 180 million barrels of crude oil from the Strategic Petroleum Reserve (SPR) to help lower gasoline prices in the wake of market disruptions caused by the Russia-Ukraine War.1 Can such action lower prices at the pump? Let’s take a look.
The SPR is a federal government complex of four underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts. Each cavern is cylindrical with an average diameter of about 200 feet and a height of 2,550 feet, which is large enough for Chicago’s Willis Tower to fit inside with room to spare.2 The government purchases and stores crude oil in the caverns, and the President can authorize the release of oil to the market in the event of a global or domestic supply disruption.
President Gerald Ford established the SPR in 1975 after the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an oil embargo against the United States, triggering a sharp increase in energy prices that in turn triggered a recession.
On October 28, 2022, the SPR held about 437 million barrels, equivalent to 21 days of oil consumption at the time. The highest storage was about 727 million barrels in June 2011, equivalent to 38 days of oil consumption at the time.
Crude oil can be released from the SPR under four conditions: emergency drawdowns, test sales, exchange agreements, and nonemergency sales. Before President Biden’s energy drawdowns in 2022, there were just three emergency sales, each associated with a market disruption caused by the Persian Gulf War (1991), Hurricane Katrina (2005), and the civil war in Libya (2011).
Both Democratic and Republican presidents boast that their emergency use of the SPR improved national security and lowered consumer prices of gasoline. However, research indicates that the price effects have been very modest3, on the order of a few cents reduction in the price of gasoline.4 The reason for the small effect is simple: the rate at which oil is released from the SPR is extremely small relative to the overall rates of oil production, oil demand, and global stocks of oil.
The release of oil from the SPR by the Biden administration dwarfs all previous releases. Might this be more effective at lowering prices at the pump? President Biden’s Treasury Department estimated that the effect would be a $0.38 per gallon reduction at the pump.5 But many other analysts suggest the price relief will be much lower, perhaps in the range of $0.15 per gallon.6 The bottom line is that while the magnitude of the Biden administration’s release of oil from the SPR is historic, its actual effect on the price of gasoline probably will be modest and not much more impactful than previous emergency drawdowns.
1 The White House, FACT SHEET: President Biden’s Plan to Respond to Putin’s Price Hike at the Pump, March 31, 2022, Link
2 U.S. Department of Energy, Strategic Petroleum Reserve, August 2022, Link
3 Kilian, Lutz, and Xiaoqing Zhou. “Does Drawing Down the U.S. Strategic Petroleum Reserve Help Stabilize Oil Prices?” Working Paper 1916, Federal Reserve Bank of Dallas, December 2019. Link
4 Fisher Investments Editorial Staff, Why the Strategic Petroleum Reserve Release Isn’t a Game Changer, November 23, 2021. Link
5 U.S. Department of the Treasury. “The Price Impact of the Strategic Petroleum Reserve Release,” July 26, 2022. https://home.treasury.gov/news/press-releases/jy0887.
6 Rascoe, Ayesha, How Releasing Federal Oil Reserves Affects the Price at the Pump, NPR, April 3, 2022, Link
