When reports surfaced Thursday that the U.S. and Britain, both members of the International energy Agency that was formed in 1974 in response to the Arab oil embargo, had agreed to a drawdown of strategic petroleum reserves, trading dropped about $2 a barrel in the markets. While we're not happy with pump prices we face -- the U.S. average on Thursday was $3.82 per gallon, according to AAA' Daily Fuel Gauge Report -- in Britain gas is more than double that, the equivalent of more than $8 per gallon.
Oil's been steadily climbing in the wake of tensions over Iran, which is facing sanctions over its pursuit of a nuclear weapons program. Iran exports more than $2 million barrels of oil a day and has threatened to retaliate by interrupting Middle East oil transportation.
Even after the White House denied that any such deal had been made, the benchmark crude oil price for the U.S. was down 32 cents at the end of the day at $105.11 a barrel, which means many oil traders weren't convinced by the Obama administration's denial.
We hope that the White House is good on its word.
The highest value of the nation's strategic oil reserve is to protect the United States in the event of an interruption of the supply of oil. Limited drawdowns are also permissible if officials see that a condition exists in which it is likely that significant shortages of domestic or international energy supplies are coming. It takes about 13 days from when the president gives the order for oil to start moving from the reserve at up to 4.4 million barrels a day, according to the Department of Energy.
As of Feb. 29, the United States had 695.9 million barrels of oil in its reserves, short of its 727 billion barrel capacity. Department of Energy officials say that is enough oil to meet the needs of the United States at current consumption rates for about 80 days.
What this does is ensure that a lengthy interruption of oil supply doesn't cripple the U.S. The oil reserve is a safety net that we can ill afford to do without.
Would moving oil from the reserve into the market place drive down gas prices you pay at the pump. Yes ... but just for a few days. Last summer, the U.S. and its partners in the IEA coordinated oil sales, with the United States taking 30.64 million barrels into the market place. Prices dipped, then shot right back up the next week. That eight-day reduction used half a week's worth of emergency oil, which, frankly, wasn't worth it. The only possible purpose for doing such a thing under present conditions would be symbolic at best, but at heart purely political.
With the dangers that could lie ahead if Iran tries to make good on its threats, the U.S. would be foolish to tap its reserve for even for a half-week's worth of emergency petroleum just to knock pump prices down a few cents for less than a week. We have learned some hard lessons over the past 11 years, not the least of which is that we must be prepared for events that once seemed inconceivable. Our oil supply could be interrupted one day and if that happens, we had better be prepared.