On Thursday, the Department of Energy (DOE) announced the release of 500,000 barrels of crude oil from an emergency stockpile in an attempt to prevent gasoline prices from rising because of the disruptions caused by Harvey. Senator Edward Market (D-MA) had asked the Energy Department to tap into the reserve early Wednesday. The Gulf Coast hosts ~50 percent of the US fuel refining capacity, and nearly 40 percent of the area’s capacity was offline as of Wednesday.
The Strategic Petroleum Reserve (SPR) stockpile was established in the 70’s, in coordination with similar reserves around the globe, in order to guard the United States from supply disruptions. The reserve stores oil at four underground locations in Louisiana and Texas.
Energy Secretary Rick Perry authorized the emergency exchange agreement with the SPR, allowing crude oil to be transported via pipeline to a Phillips 66’s refinery in Lake Charles, Louisiana. The Energy Department has set up the release as an oil exchange, which means Phillips 66 will need to contribute back more oil than it received from the petroleum reserve.
“This decision will authorize 200,000 barrels of sweet crude oil and 300,000 barrels of sour crude oil to be drawn down from SPR’s West Hackberry site and delivered via pipeline to the Phillips 66 refinery,” DOE Spokeswoman Jess Szymanski said in the statement.
The refinery in Lake Charles was not damaged by Harvey like the numerous other refineries shut down or damaged throughout Texas and Louisiana. The release of the crude oil is the first emergency release from the SPR since Hurricane Isaac in 2012.
Since Harvey came ashore, causing record flooding, gasoline prices have increased by more than 10 cents a gallon. Pump prices have also surged. Last week the average price for a gallon of gasoline was ~$2.35 compared to ~$2.45 not, AAA has reported. In some states the average cost per gallon of regular gas has climbed even more; such as the state of Georgia where gas spiked 17 cents a gallon.
“Crude prices are going to go down because they can’t deliver and they can’t refine them. And gasoline prices are going to go up. We understand economically what’s going on here,” Secretary Perry said.
Earlier this year, President Donald Trump proposed selling nearly half of the petroleum reserve, currently at 679 million barrels; selling up to 270 million barrels of oil over the next decade. The proposal could push the reserve below 300 million barrels by 2025, leaving the country at a disadvantage should the US face similar disasters as Harvey in the coming years.
The DOE has said they will continue to review incoming request for more SPR crude oil, also stating that should Secretary Perry decide to approve additional requests for emergency exchanges, the public will be notified. Its expected to take two weeks or longer before refineries in Houston can recover and resume normal operations.
Get Financial News straight to your email.