Gasoline prices are on a dramatic rise, and everybody’s got advice for the White House.
No surprise, Republicans are reviving their “Drill, Baby Drill” catcalls from 2008, but liberals in Washington are getting nervous and asking President Barack Obama to tap into the Strategic Petroleum Reserve as a potential panacea for escalating gasoline prices.
Picking up on the themes of a speech he gave Thursday at the University of Miami, Obama used his weekly radio address Saturday to remind Americans of his view that if prices at the pump rise as expected in the coming months, “there are no quick fixes to this problem, and you know we can’t just drill our way to lower gas prices.”
He also warned that rising gas prices could hurt any economic recovery. While there is “no silver bullet that will bring down gas prices or reduce our dependence on foreign oil overnight … what we can do is get our priorities straight, and make a sustained, serious effort to tackle this problem,” Obama said.
The potential danger to the economy – and the president’s reelection chances – have liberals urging the White House to unleash the SPR now, before it’s too late. The national average for a gallon of unleaded gasoline was $3.65 on Friday, according to AAA.
“Selling reserve oil on the open market is the one step that we know will reduce oil and gasoline prices in the immediate term,” said Daniel Weiss of the Center for American Progress Action Fund. “Every time we sold reserve oil it has lowered oil and gasoline prices. We know it works.”
Three House Democrats – Reps. Ed Markey, Peter Welch and Rosa DeLauro – also are urging Obama to open up the spigots.
“This most recent run-up in prices is primarily the result of fear driving oil markets, not an actual loss of supply,” they wrote in a letter to Obama, adding that it would “send a message to Iran that we are ready, willing and able to deploy our oil reserves.”
On Friday, Treasury Secretary Tim Geithner suggested the SPR is a possibility. “There’s a case for the use of the (reserves) in some circumstances, and we’ll continue to look at that and evaluate that carefully,” he told CNBC Friday morning.
Obama himself has been mum on the SPR; the president didn’t mention the reserve during his energy speech Thursday in Florida or in Saturday’s radio address.
President George H.W. Bush tapped the reserve during the first Gulf War; Congress ordered sell-offs during the 1990s for budgetary reasons; George W. Bush used the SPR after Hurricane Katrina; and most recently, Obama in June sold 30 million barrels from the reserve to address concern of the loss of Libyan oil on the global market. By then, roughly 140 million barrels had been lost to the market since disruptions began. By comparison, there was a shortage of 38 million barrels after Hurricane Katrina struck, the last time the SPR was tapped.
When Obama tapped the SPR last June, administration officials made a point of distancing the connection to gas prices – underscored by the fact that by the time of the announcement, gas prices had declined 45 of the previous 49 days. Critics pounced at the time, saying it was politically motivated and that there was not a global emergency that warranted the sale.
The current rise in oil prices are pegged to tensions with Iran, which is threatening to block off supply from being ferried along the Strait of Hormuz, a narrow channel of waters between Iran and Oman where about one third of all global seaborne oil passes through.
The U.S. also faces potential domestic gas price spikes tied to refinery closings in the Northeast due to their use of global Brent crude, which pushed to a nine-month high of more than $125 a barrel Friday.
(Refineries in the Midwest use West Texas Intermediate crude, stored in Cushing, Okla., which reached more than $109 a barrel Friday.)
Charles Ebinger, who was a foreign affairs officer at the Federal Energy Administration, the precursor to the Energy Department, when the reserve was created in 1975, predicts Obama will tap the SPR.
“Yeah, it will happen because I think they’re in panic mode in the White House; they have to show that they’re doing something,” Ebinger said.
Tapping the reserve “might psychologically help the market a little bit,” said Jay Hakes, former head of the Energy Information Administration under President Bill Clinton and Interior Department official under President Jimmy Carter. “The market should be reassured that the reserve is there available to be used, but that doesn’t necessarily mean it should be used.”
Ebinger – now a senior fellow and director of the energy security initiative at the Brookings Institution – said the reserve needs to be maintained to be used in case of a major calamity, such as any attacks on major Saudi refineries or liquefied natural gas facilities in Qatar.
“I have always thought that using the reserve except for what it was originally intended for, a major supply crisis, is ill-advised,” Ebinger said.
Avery Ash – manager of regulatory affairs at AAA – agrees that there is not a supply disruption that yet warrants the use of the reserve but said the Obama administration is right to keep the threat of its use out there.
“To tap the SPR just to lower prices, we don’t think that that’s appropriate,” Ash said. “The real power, if you’re looking to remove some of that speculation on the market, is really that threat of a release causing some pause for speculators. We’re likely to hear that the president’s not taking that off the table for good reason.”
Obama has a right to be cautious about using the reserve.
Hakes said under the current statute, written when the U.S. was implementing price controls in the mid-1970s, the administration has to clearly state that there is a supply interruption. The statute says a drawdown and sale cannot occur unless the president deems it “required by a severe energy supply interruption or by obligations of the United States under the international energy program.”
Last year’s sale, in fact, came as part of a larger commitment by the International Energy Agency – of which the U.S. is a member – to add 60 million barrels of oil to the global market. At the same time, Saudi Arabia pledged to increase its production.
But the law says the SPR can also be tapped if “a severe increase in the price of petroleum products has resulted” from an emergency and “such price increase is likely to cause a major adverse impact on the national economy.”
“So it seems very clear to me that President Obama can use existing statutory authority in anticipation of a Persian Gulf supply disruption,” Weiss said.