LegiStorm

Summary:

Crude oil price volatility has consequences for the U.S. and global economy. The Strategic Petroleum Reserve (SPR), the U.S. stockpile of petroleum, has played a role in U.S. energy policy for over 40 years. The need for a stockpile of petroleum to help protect against supply disruptions became apparent after the 1973-1974 Arab oil embargo, during which time the average price of imported crude oil tripled. The oil embargo also fostered the establishment of the International Energy Agency (IEA), an intergovernmental organization, and the development of coordinated plans and measures among IEA members for emergency responses to energy crises. Strategic petroleum stock holdings are one policy included in the agency's International Energy Program (IEP) agreement. As an IEA member and IEP signatory, the United States must meet certain stock holding thresholds and be prepared for a coordinated response during an emergency. In 1975, Congress passed the Energy Policy and Conservation Act (EPCA, P.L. 94-163) authorizing the creation of the SPR for storage of petroleum products to reduce the impact of supply disruptions and to carry out IEP obligations. The United States uses the SPR to meet its IEP requirements. The U.S. federal government, through the U.S. Department of Energy (DOE), manages the SPR. EPCA authorizes the SPR to hold stocks of crude oil or any refined petroleum product. However, the SPR currently only holds crude oil. Since 1975, Congress has enacted several laws that have expanded the role of the SPR. Through 2019, the SPR has released over 230 million barrels of crude oil for various authorized purposes. Presidents have ordered releases on three occasions in response to severe energy supply interruptions in coordination with other IEA member countries. Other sales authorized for various reasons (e.g., to generate revenue to reduce the budget deficit as well as to modernize the SPR) have reached around 88 million barrels through 2019. Three test sales have confirmed SPR operability. The Secretary of Energy has several authorized methods to acquire petroleum for the SPR: direct purchases, royalty-in-kind transfers (RIK), deferrals and exchanges, or other means. Government analysis indicates that the United States has been a net exporter of crude oil and petroleum products from September 2019 through January 2020. The IEP does not require net exporters to maintain a petroleum stockpile. IEA members can use both public and commercial stocks to meet their obligation. Both public and privately held oil stocks have important roles to play in providing security in times of oil market disruptions. Similarly, both public and private oil stocks have some role in oil price determination and movements. However, there may be benefits to maintaining SPR oil stockpiles, as the oil market can often be unpredictable, as demonstrated by dramatic demand/supply shifts and subsequent low oil prices experienced in early 2020. Several signs have suggested oil markets may be more able to adjust to supply disruptions (though not necessarily an oversupply). The changing role of the United States in world petroleum markets has driven a debate on how best to utilize the SPR. Congress's motivation in creating the SPR focused on a deliberate and dramatic physical supply disruption and on mitigating the economic effects of a shortage stemming from international events. As market conditions continue to evolve, and the United States experiences new market conditions, Congress may consider options for utilizing the SPR in an oversupplied, low oil price environment.