Oil Reserve Release Hoped To Quiet Global Anxiety
SUSAN STAMBERG, host:
This is WEEKEND EDITION from NPR News. I'm Susan Stamberg.
Here's some good news if you have summer travel plans: A decision by the U.S. and other industrialized nations to tap government oil reserves could drive down the price of gas even further in the coming months. This past week, the Obama administration announced plans to release 30 million barrels of oil from the Strategic Petroleum Reserve. That accounts for half of the 60 million barrels that the international community plans to release. It's part of a plan to compensate for losses of a high-quality grade of oil produced by Libya. The civil war there has caused supply disruptions.
Daniel Yergin is a longtime observer of energy policy. He's chairman of IHS Cambridge Energy Research Associates. He with us from our New York Bureau. Welcome to you.
Mr. DANIEL YERGIN (Chairman, IHS Cambridge Research Associates): Thank you.
STAMBERG: And please, first just to begin for those of us who are unacquainted, tell what it means to release oil from the Strategic Petroleum Reserve.
Mr. YERGIN: There has been concern for many decades about crises in the oil markets. But what really got it going was in the 1970s when there were very big disruptions in the Arab oil embargo and the members of the new IEA, the International Energy Agency, decided that everybody should keep oil that was there really for a disruption or an emergency. And ours is in the Strategic Petroleum Reserve and that's what they tapped into with this decision.
STAMBERG: Do you think it's a real attempt to lower fuel prices and make up for these losses from Libya or are there some politics at play here?
Mr. YERGIN: I think fundamentally it's about the impact of higher oil prices on the economy. You know, a couple of months ago when the disruption first started in Libya, people in the administration said as long as it's short-term, we'll wait and it will kind of solve itself. Well, it's now gone on for several months and we've had higher oil prices, and over the last two weeks two things happened: one, OPEC had a meeting where they failed as a group to raise supply to take some of the pressure out of the market; and secondly, there's been disappointing news about the U.S. and the global economy and a recognition that high oil prices have a very direct impact.
STAMBERG: Yeah. Spell that out for us a little. How could it be a form of economic stimulus?
Mr. YERGIN: So, we've kind of run out of other stimuluses to do, but by bringing down oil prices, which they're trying to do with this, it is a form of a stimulus. It's basically like a tax cut; puts more money in your pocket.
STAMBERG: Yeah. And apparently it's only been done twice, these reserves being tapped. Once after Iraq invaded Kuwait and then again after Hurricane Katrina. What is it that makes this situation an emergency?
Mr. YERGIN: This is more focused on the economics. Obviously, those two examples you cited, those two cases, were concerned about real disruption. But I think this one isn't, obviously, their recognition that Libyan oil is going to be out for a long time. It's not a huge amount but it is a significant amount. And secondly, it is the impact of high oil prices as a drag on the economy. And I think that is, over the last couple of weeks, that's what tipped the scale to do this.
STAMBERG: There are Republicans though who say they'd rather see more permits issued so that more drilling could be done domestically. What are your thoughts about that?
Mr. YERGIN: Well, I think that does highlight the fact that people used to talk about how we imported two-thirds of our oil. Well, actually right now we only import about half because production has gone up. You know, people talk about a permatorium(ph) rather than a moratorium in the Gulf and when are permits going to be issued and people start producing again.
STAMBERG: I wonder if you have your crystal ball handy and you might make a prediction as to how low gas prices just might go if all this does what people are hoping it does.
Mr. YERGIN: Yeah, well, first I think we have to look at this in the short term. And the impact will really be determined by economic recovery or not. But we'd already seen before this happened; gassing prices had come down about 20 cents on a national basis. The near-term impact of this is to pull crude oil down and that means gasoline prices down. So, that means motorists looking more around maybe 3.50 rather than $4 on a national basis.
STAMBERG: Gee, I was hoping you were headed toward a dollar and a quarter.
Mr. YERGIN: Well, if we do that we'd have to get into a time machine and go back to the 1950s.
STAMBERG: Right you are. Daniel Yergin, chairman of IHS Cambridge Energy Research Associates. He spoke with us from New York. Thanks a lot.
Mr. YERGIN: Thank you.
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