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Due to fears over the situation in Iran, amongst other things, oil prices are at a nine month high, and petrol prices are also at near record levels. These high prices have spurred Democratic Representatives Ed Markey of Massachusetts, Peter Welch of Vermont, and Rosa DeLauro of Connecticut, to write a letter to Obama in order to ask him to use oil stockpiles to help reduce the price of oil in the US. The US holds 696 million barrels of oil, the world’s largest, government owned stockpile, to be used in times of low oil supply.
“This most-recent run-up in prices is primarily the result of fear driving oil markets,” Markey, Welch and DeLauro wrote to Obama. “We urge you to consider again deploying oil” in the reserve “to combat the rapid price escalations resulting from speculation.”
The Washington based American Petroleum Institute has agreed that using stockpiles to increase supply could lower prices, but only for a short time. Their chief economist John Felmy believes the stockpiles should not be used, suggesting that, “it drains reserves that could be needed in a real supply emergency.”
The Republicans are also opposed to the use of oil stockpile. Senator Lisa Murkowski of Alaska, the senior Republican on the Energy and Natural Resources Committee, said “The Strategic Petroleum Reserve (SPR) is there for times of emergency and supply disruptions. It is imperative it be available for a serious supply disruption down the road,” such as interruption of the crude oil supply from Iran.
The supply of Iranian oil to the global market could be severely restricted by a closing of the straits of Hormuz, or armed conflict against the US and Israel. It is during these times of oil shortage that the stockpiles should be used, to ensure the US has enough oil to operate on a daily basis. Such as last year when the International Energy Agency used some of the oil stocks to ease shortages in supply during the conflict in Libya. Current high prices are not caused by oil shortages.
Richard Jones, deputy director at the IEA, confirmed that “the market is currently quite well supplied. There is actually no disruption at hand.”
Nancy Pelosi of California, the House Democratic leader, also agrees that oil supply is not the problem. “Speculators are driving up the cost of oil, hurting consumers and potentially damaging the economic recovery. Wall Street profiteering, not oil shortages, is the cause of the price spike. In fact, U.S. oil production is at its highest level since 2003.”
The US should remain patient. The odds are high that oil prices will continue to rise as the situation in Iran roles on, and the possibility of a loss of supply to global markets from a conflict in the region is not far-fetched. The SPR must be used as a last resort to ensure the continued survival of US industries reliant on oil, not just to help relieve the pressure on wallets created by high prices in the short term.
