By John Kemp
LONDON Aug 31 With Italy and Germany continuing
to resist the release of oil from emergency stockpiles,
attention will turn to the possibility of a unilateral release
by the United States, possibly in conjunction with allies like
Britain and France.
The symbolism of a multilateral release would clearly be
preferable for the White House since it would maximise the
impact on global oil markets and limit criticism that the
president is manipulating oil prices to help his re-election
But the size of U.S. stocks ensures the threat to go it
alone is credible, and may give U.S. officials leverage to bring
other members of the International Energy Agency (IEA) on board
if the Obama administration decides to push for a release.
Even if they refuse, the president has broad authority under
U.S. law to go ahead alone or in conjunction with a few allies.
The United States accounts for nearly half of all emergency
stocks held by the 28 members of the IEA. At the end of June,
the U.S. Strategic Petroleum Reserve (SPR) contained 696 million
barrels of crude, just over 45 percent of the total strategic
stocks of 1.537 billion barrels held across the OECD.
In the most recent emergency action, in June 2011, the
United States accounted for half of all the stock offered to the
market -- and substantially more than half of the stock actually
The SPR offered 30 million barrels, received bids for 60
million, and ended up selling just over 30 million. Other IEA
members theoretically made 30 million barrels available to the
market, but in practice sold much less.
Germany offered 285,000 tonnes of crude, 142,000 tonnes of
gasoline and 142,000 of gasoil, through a combination of
allocations and public tenders, but only 62 percent of the
released volume was actually taken up by the market.
In Belgium, 95,000 barrels of jet fuel was offered and sold.
But of the 702,000 barrels of gasoline, gasoil and fuel oil made
available, only 24,000 barrels was actually cut from strategic
Part of the problem was pricing. The SPR accepted small but
significant discounts to ensure its target allocation was sold.
In contrast, some stock holding organisations in Europe insisted
on trying to sell crude and products at market prices. Since
there was no actual shortage of physical barrels the attempt
drew few bids.
The other problem stems from differences in the way
emergency stocks are organised and released. In the United
States, strategic stocks are owned and stored by the federal
government. The government invites tenders and accepts the most
competitive bids, accepting enough of a discount to ensure all
the target volume is actually sold.
But in many European countries, stocks are owned and stored
by refiners and distributors to comply with legal obligations
imposed by governments. In many cases, the "release" of
emergency stocks took the form of a (temporary) reduction in
legal stock holding obligations. For example, Spain cut the
stock holding obligation by the equivalent of 2.3 days worth of
consumption/sales. Belgium cut its stock holding obligation by
But there was often no obligation actually to sell the oil.
In many cases strategic stocks were simply transformed into
commercial ones with no sale transaction, no transfer of
ownership, no movement and no impact on prices.
The U.S. president has broad legal authority to order the
release of oil from the SPR. The law governing stock releases is
set out in Chapter 77, Title 42 of the U.S. Code ().
The law contemplates a wide range of economic, foreign
policy and security factors which might give rise to the need to
release emergency stocks.
When the reserve was established in 1975, lawmakers
declared: "Congress finds that the storage of substantial
quantities of petroleum products will diminish the vulnerability
of the United States to the effects of a severe energy supply
interruption, and provide limited protection from the short-term
consequences of interruptions in supplies of petroleum
"It is the policy of the United States to provide for the
creation of a Strategic Petroleum Reserve for the storage of up
to 1 billion barrels of petroleum products to reduce the impact
of disruptions in supplies of petroleum products, to carry out
obligations of the United States under the international energy
program, and for other purposes." (42 USC 77 6231)
The law makes clear that the reserve may be used
unilaterally as well as to meet international commitments to the
The president's authority to order a release is set out in
section 6241. The president may order a release in the event of
"a severe energy supply interruption" or to meet "obligations of
the United States under the international energy program". Again
the law highlights the president's dual power to order releases
unilaterally as well as part of a coordinated international
There are three legal routes by which the president may
order a release:
(1) Before the president can order a release, he must
determine that there is a severe energy supply shortage which:
(A) is or is likely to be of significant scope and duration; (B)
may cause a major adverse impact on national safety or the
national economy; and (C) results or is likely to result from an
interruption in the supply of imported or domestic petroleum
products, an act of sabotage or an act of God (42 USC 77
(2) Alternatively the president must certify that: (A) an
emergency situation exists and there is a significant reduction
in supply which is of significant scope and duration; (B) a
severe rise in the price of petroleum products has resulted from
such emergency situation; and (C) the price increase is likely
to cause a major adverse impact on the national economy (42 USC
(3) The president may order a more limited release of no
more than 30 million barrels if he determines some other
situation exists that: (A) constitutes or is likely to become a
domestic or international energy supply shortage; (B) action
would assist directly and significantly in preventing or
reducing the adverse impact; and (C) the secretary of defence
has found that action will not impair national security (42 USC
Many analysts claim the SPR was set up to deal exclusively
with physical shortages, such as those caused by war or an
embargo. But the law clearly contemplates a much wider range of
circumstances for employing reserves. It explicitly envisages
using them to counter not just physical shortages but also
threats to the national economy from a sharp rise in prices.
In each case the trigger for a reserve release is a mix of
physical and economic factors. And the physical factors are set
out in quite general terms so there is little restriction on the
The president need certify only that there is "a severe
energy supply shortage" or even just "a domestic or
international energy supply shortage" to order a release. Both
are quite unspecific and the latter threshold (for authorising
the release of up to 30 million barrels) is very low.
In the event that the White House determines that rising
prices are a threat to the economy, the president has plenty of
legal cover to order a unilateral release, whether or not the
IEA and other countries agree a shortage exists, and whether or
not they agree on coordinated action.