With demand for gasoline expected to rise during the summer months, the Obama administration announced the country and its partners in the International Energy Agency would release 60 million barrels of oil onto the world market over the next month.
As part of the effort, the United States will release 30 million barrels of oil from the Strategic Petroleum Reserve -- which the White House says is currently at a historically high level of 727 million barrels, a number the Department of Energy says means it is "filled to capacity." Releasing oil from the reserve is extremely rare.
The administration cited the situation in Libya, which "has caused a loss of roughly 1.5 million barrels of oil per day -- particularly of light, sweet crude -- from global markets" to explain their decision. Since the disruption in Libyan oil exports due to the NATO operation there, some 140 million barrels of oil has been removed from the global market, said one senior administration official.
Officials said President Obama's decision was about addressing supply disruptions and that gas prices "will be what they are". Still, they said the move was intended help address a drag on economic growth and high gas prices are one of the "headwinds" the president has said are hampering the recovery and job creation, top concerns on voters' minds.
"The president has been deeply concerned about the impact that the disruption in the oil production and exports from Libya and other countries in the Middle East has had on energy supplies globally, the tightness that that's created in the market and the effect of that tightness on global economic growth at home and abroad," said a senior administration official in a conference call with reporters.
While retail gas prices nationwide have fallen since late April and early May, according to the U.S. Energy Information Administration gas averaged $3.652 a gallon as of June 20th -- about 91 cents higher than a year ago and about 10 cents higher than in mid-March, before the conflict in Libya began.
The United States has been in close contact with oil producing and consuming countries about disruptions to the international oil market that could affect the global economy and the administration will continue to consult closely with them, according to the White House release. Today's decision is intended to complement the production increases recently announced by a number of major oil producing countries, like Saudi Arabia and other Persian Gulf countries who have said they will increase oil production by up to 1.5 million barrels/day for the remainder of the year to meet market need.
The oil reserve was set in motion in 1975 when President Ford signed the Energy Policy and Conservation Act (EPCA), after the 1973-74 oil embargo cut off oil flowing into the United States from many Arab nations and "sent economic shockwaves throughout the nation," according to the Department of Energy. That legislation declared it to be U.S. policy to establish a reserve of up to one billion barrels of petroleum.
Decisions to withdraw crude oil from the reserve, which the department calls "a key tool of foreign policy," are made by the president in the event of an "energy emergency." Prior to today's announcement, the reserve has been used under these circumstances just twice -- during Operation Desert Storm in 1991 and after Hurricane Katrina in 2005.
A notice regarding sales will go out in the next 24 hours, said an official, and the law does not allow purchasers to export the oil from the US without an export license. It also says that export of SPR crude is only permitted if an equal volume of refined product is returned to the United States.
"At end of first 30 days of action by IEA members, we will review the results," he went on to say. "The U.S. stands ready to do more as and if necessary."