Wielding the Strategic Petroleum Reserve

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SAN FRANCISCO (MarketWatch) — As civil war wracks Libya and protests sweep the Arab world, Americans brace for their own “Day of Rage” at the gas pump.

The spike in gasoline prices, up nearly 40 cents in the past month, has unleashed a torrent of jaw-boning in Washington about the need to tap the nation’s Strategic Petroleum Reserve. Numbers bantered about over the weekend suggest the White House is considering releasing as much as 4.2 million barrels from the reserve to put the brakes on runaway gas prices.

That would be pointless. Its work is done. For now.

Look at the numbers. Four million barrels of crude oil is less than 0.6% of the reserves’ 727 million-barrel total capacity and would yield less gasoline than the nation’s motorists burn in 12 hours. Besides, according to the Energy Information Administration, U.S. gasoline stocks are already hovering near 20-year highs, crude stockpiles currently exceed the four-year average and there has been no significant decline in oil imports.

But tell that to the futures traders, who didn’t waste time turning fears over a crisis in the Arab world into $100-a-barrel oil.

Anyone wedded to marketplace fundamentals can be heard lamenting that the market is not behaving logically. But futures traders have no contractual obligation to logic. That’s why the mere mention of tapping the Strategic Petroleum Reserve, even if only a paltry 4.2 million barrels, helped knock crude off an intraday high of $106.95 in New York. Read about oil retreating from recent highs.

The SPR is there for emergencies. Despite all the hand-wringing about how higher gasoline prices would hurt a fragile economy, this is not even close to being a national emergency.

Meanwhile, everyone gets a glimpse of the SPR’s true value as a psychological lever in the marketplace. It’s silly to think it can shield the nation from higher oil prices in a protracted emergency. But the very mention of it sends a “sell” signal to enough oil traders to make a short-term difference. It’s magic. No physical barrels need change hands.

At the same time, it gives us yet another opportunity to contemplate our vulnerability to the whims of the global oil market and how we might handle a real emergency. And we’re pretty good at contemplating. We’ve been doing it since the first Arab oil crisis in 1973, nearly as long as Col. Moammar Gadhafi has been in power.

By Jim Jelter