Obama May Tap Emergency Oil Stocks
US President Barack Obama is considering tapping emergency oil reserves to control prices following a dramatic OPEC meeting this week.
A Bloomberg report Wednesday said the president is keeping all options open, which include releasing stocks from the strategic petroleum reserve to boost supply and relieve soaring oil and gasoline prices. It follows the 12-nation OPEC group’s failure to agree to a production increase at its Vienna meeting this week, and calls for the Obama administration to release emergency oil stocks earlier this year from Congressional Democrats.
“We believe we are in a situation where supply is not meeting demand,” White House press secretary Jay Carney said after the OPEC announcement. “The reserve is designed to deal with disruptions in oil supplies and the president considers that an option going forward.”
Saudi Arabia had campaigned for OPEC to lift production targets by 1.5 million barrels to counter lost Libyan crude and an expected increase in global oil demand later this year. But six OPEC countries blocked the move. Led by Iran, they argued supply was sufficient, particularly in light of weak economic readings out of the US.
The International Energy Agency has repeatedly called for OPEC to boost production in recent months amid apparent supply shortages. It also suggested oil-importing countries could dip into strategic oil reserves if OPEC refused to increase output.
Obama has already cited high oil costs as a “headwind” to economic growth and a drain on the finances of ordinary American consumers and motorists. With gasoline prices topping $4 a gallon in some states and home heating oil costs still near record levels, oil prices are shaping up as a key area of debate ahead of next year’s presidential elections.
In April, Rep. Edward Markey, D-Mass, called on Obama to release oil reserves to help bring prices down. Heating oil dealers have supported the move. They and their customers are among those worst hit by the oil price spikes.
The US reserve holds 727 million barrels of crude oil in caverns along the Gulf of Mexico coast, Bloomberg reported. It was established to counter supply disruptions following the Arab oil embargo of 1973-74. The government has released reserve oil 17 times since 1985, most recently in 2008 after hurricanes Gustav and Ike struck the Gulf Coast, according to the US Energy Department. Such releases generally cause prices to fall as more oil comes on to the market.
Whether Obama is serious about releasing the reserve or simply sounding a warning to OPEC remains to be seen. Strategic reserves are only meant to be used in emergency supply situations, not as a price control lever.
And though Obama is now arguing that supply is tight, he said the opposite just a few months ago when he blamed oil speculators for artificially driving up oil prices. “There’s enough supply. There’s enough oil out there for world demand,” he said in April.
But OPEC’s failure to reach consensus for the first time in 20 years is likely to mean near-triple digit oil prices for the foreseeable future unless the Obama administration takes action.