Not yet time to use oil reserves

Dan Yergin is right:  it is not yet time to use the Strategic Petroleum Reserve (SPR).  Why not?

The 727 billion barrel SPR is intended for use in an oil supply disruption. Libya has partially disrupted its own oil supplies, but they are relatively small, about 1.5 million barrels per day of exports. Oil prices are spiking, but not because of the Libyan supply disruption. As Yergin says, they are anticipating risks in the future, risks like demonstrations in Saudi Arabia that might disrupt the massive supplies that come from its Shia-populated Eastern Province.

We should be urging oil exporting countries to increase their production in response to higher prices, which they are likely to do in any case, and holding our own reserves in reserve for the possibility that things will get worse, possibly much worse. The market is telling us that is a real possibility.

I spent the years 1982-85, when oil prices fell sharply, preparing for an oil supply disruption and the resulting spike in prices as the U.S. representative to the emergency committee at the International Energy Agency. I trust the plans we developed then for a coordinated (with friends and allies) draw of oil stocks early in a supply disruption have been much improved since. Relatively small emergency drawdowns of the SPR were authorized during Desert Storm in 1991 and after Hurricane Katrina in 2005. Loans and exchanges have been used to meet other exigencies.

I understand that there is a real need for the White House to be seen as doing something to counter the rise in oil prices and defend the economic recovery. But there is a real risk that turmoil in the Middle East will eventually disrupt many millions of barrels per day of oil supply, making things much worse than they are today. I’d wait to see the whites of oil disruption’s eyes before using our most important, but inherently limited, weapon to defend against a price spike.