September 15, 2019 / 4:44 AM / a month ago

U.S. readies emergency oil reserves in wake of Saudi attacks

WASHINGTON (Reuters) - The Trump administration said on Saturday it stood ready to tap U.S. emergency oil reserves if needed after attacks in Saudi Arabia shut more than half the crude output in the world’s largest oil exporter.

Oil pump jacks work at sunset near Midland, Texas, U.S., August 21, 2019. Picture taken August 21, 2019. REUTERS/Jessica Lutz

Yemen’s Iran-aligned Houthis claimed responsibility for the attack that knocked out about 5 million barrels or 5% of global production, but U.S. Secretary of State Mike Pompeo put the blame squarely on Iran.

The Strategic Petroleum Reserve, managed by the Energy Department, is held in heavily-guarded underground caverns on the Texas and Louisiana coasts. The world’s largest oil reserve currently holds nearly 645 million barrels of oil, according to the department website, consisting of 395 million barrels of heavy sour crude and 250 million barrels of light sweet oil.

Former Secretary of State Henry Kissinger pushed for the creation of the SPR in 1975, after the Arab oil embargo spiked gasoline prices and damaged the U.S. economy.

Under U.S. law, the president can call for an emergency sale from the SPR if the country is confronted a supply disruption that threatens the economy. The SPR has been used for that purpose three times, most recently in 2011 after violence in Libya.

Washington in the past has participated in coordinated drawdowns of emergency oil with the Paris-based International Energy Agency, which coordinates energy policies of 30 industrialized nations, including the United States.

Energy Secretary Rick Perry said on Saturday he directed his department to work with IEA on options for “collective global action” if needed to supply global oil markets.

After the decade-long U.S. oil boom, many politicians say the time has come to greatly reduce the size of the SPR, calls that may fade after Saturday’s attacks.

Below are some of the biggest releases from the emergency reserve.

LIBYA

In June 2011, President Barack Obama ordered the sale of 30.6 million barrels in response to crude supply disruptions in Libya. This was coordinated with the IEA, which also released 30 million barrels.

HURRICANE KATRINA

In September 2005, after Hurricane Katrina hit oil production, petroleum distribution and refineries in Louisiana and Mississippi, President George W. Bush ordered the sale of 30 million barrels of oil, and of which the SPR ended up selling 11 million to energy companies. In a coordinated response, the IEA set a goal of making available 60 million barrels of oil and petroleum products, but ultimately less than that was sold.

OPERATION DESERT STORM

In January 1991, after U.S. and allied warplanes began attacks against Baghdad and other military targets in Iraq, President George H.W. Bush ordered the sale of 34 million barrels of which 17.3 million barrels was sold.

HURRICANE HARVEY

In 2017 after Hurricane Harvey inundated Texas and shut down much of the region’s refining capacity, Perry ordered an exchange of oil from the reserve. A total of 5.2 million barrels was delivered to Gulf Coast refiners, and slightly more oil was repaid to the reserve by early 2018.

HURRICANE ISAAC

In August 2012, the SPR provided an emergency loan of 1 million barrels to Marathon Petroleum Company for their refining operations after Isaac shut oil production in the Gulf of Mexico.

HURRICANES GUSTAV AND IKE

In September 2008, 5.3 million barrels of oil were delivered to five companies whose supplies had been hit. The oil was repaid by mid-2009.

21ST CENTURY CURES ACT

Under this 2016 law the SPR was directed to sell oil to raise money for the government and drug programs. It directed the sale of 25 million barrels over three fiscal years beginning in 2017.

BUDGET ACT

Under the 2015 law, the SPR was directed to sell up to $2 billion of SPR crude from 2017 to 2020 to modernize the SPR. Pipelines and pumps at the SPR have suffered damage after decades of exposure to moist, salty air. The modernization is also meant to improve the ability of the SPR to load oil onto tankers for exports.

Reporting by Timothy Gardner; Editing by Marguerita Choy

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