BATON ROUGE – As gas prices continue to rise, the Federal Government announced the Department of Energy will release 50 million barrels of oil held in the U.S. Strategic Petroleum Reserve. Customers could see the effects of this at the pump in the next few months.
LSU Associate Research Professor in the Center for Energy Studies Greg Upton, an expert on economic, environmental and public policy issues in the energy industry explains how people will soon see the effects of this rare administrative action.
How unusual or historic is it that oil from the Strategic Petroleum Reserve, or SPR, is being released?
“SPR was created in 1975 due to concerns about the security of oil imports. In recent years, it has been used after major hurricanes that temporarily impacted oil supplies. Most recently, it was used after Hurricane Ida. What makes this release somewhat more interesting is that there is no geopolitical or oil supply shock. Instead, the release is simply hoped to put downward pressure on oil prices, which in theory will reduce the price of gasoline and other energy products.”
Why are we seeing a higher demand for oil?
“As highlighted in our recent Gulf Coast Energy Outlook, U.S. and Gulf Coast oil production have yet to reach pre-COVID levels [See Table 1 in the GCEO document here]. Thus, as energy demand globally is coming back, supply has been a bit slower to return, due to the lag time it takes to drill new wells and bring that production to market. In my opinion, this is the primary reason for the recent upward pressure on prices.”
Does this ultimately mean we will soon see lower gas prices at the pump?
“Futures markets are predicting that both oil prices and gasoline will go down over the next year or so. So, regardless of whether oil is released from the SPR, oil and gasoline prices are likely to trend downward over the next year.”
When we look at the bigger picture, are high gas prices a global problem?
“In net, increased energy prices have been shown to slow economic activity, because energy is an input to production of essentially every good and service that we consume. But, the current price levels are not unusual by historical standards. Globally, oil prices have seen upward pressure over the past several months for reasons described above, so this is not just a U.S. phenomenon.”