Wednesday, March 22, 2023
March 22, 2023

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Gas keeps costing more. Would an emergency oil supply help cut prices?


WASHINGTON — California gasoline prices are soaring again — up more than a dollar over the last month — and the latest big congressional idea for relief involves creating an emergency oil supply that Washington would tap when prices soar.

It’s called the Economic Petroleum Reserve. Experts, however, aren’t enthusiastic, and the plan is unlikely to ease prices anytime soon.

“It’s a non-starter,” said Patrick De Haan, head of petroleum analysis for GasBuddy, which tracks price trends, of the reserve idea.

“I’m not sure this really helps the problem,” said Sanjay Varshney, professor of finance at California State University, Sacramento.

The state’s average price of gasoline keeps rising, even as the national average continues to drop or stabilize. California’s average Friday was $6.29 for a gallon of regular, up from $5.27 a month ago, according to AAA. The national average was $3.80, down about 5 cents from a month ago.

In Sacramento, the Friday average was $6.22. Other AAA readings: Modesto, $6.04, Merced, $6.10; Fresno, $6.06 and San Luis Obispo, $6.51.

The emergency reserve plan, pushed by Rep. Josh Harder, D-Turlock, House Energy and Commerce Committee Chairman Frank Pallone, D-New Jersey, and others, is called the Buy Low and Sell High Act.

Its key provision would have the federal Energy Department sell oil from the new Economic Petroleum Reserve when prices are high. It would have up to 350 million barrels of oil. The government could buy oil at prices below $60 a barrel and could then sell it when prices were higher than $90 per barrel. Crude oil is now trading at roughly $80 a barrel.

Can Congress act on prices?

The thinking is that by releasing this oil when pump prices are high, pump prices will drop somewhat. But the bill faces significant hurdles.

The House is not scheduled to meet next month, and is not expected to return until after the Nov. 8 election. In the Senate, where 60 votes are likely to be needed to advance the bill, and skeptical Republicans are seen as unenthusiastic.

Harder said he’s ready for the challenge.

“Central Valley families don’t care about the legislative calendar or when the election is when they’re paying $6 a gallon,” he said. “We have this bill ready now.”

The new reserve would become part of the nation’s current Strategic Petroleum Reserve. Created by a 1975 law after a Middle East oil embargo sent prices soaring and supplies tightening, it can have up to 714 million barrels, stored in salt caverns at four sites along the Gulf coast.

Oil from the reserve has been used for several purposes. It has been released during emergencies, such as hurricanes, and supply disruptions, such as the one created by the 1991 Gulf War.

As prices soared earlier this year, President Joe Biden announced a release of 180 barrels of oil from the reserve over six months.

A Treasury Department study in July found that the efforts helped lower the price of gasoline by 17 cents.

Can oil prices be controlled?

So why is a special Economic Petroleum Reserve needed, especially when the current emergency reserve is at its lowest level in 38 years?

Because, said Harder, “We have to do everything we can to get prices down and keep them down.”

And, supporters said, this idea would directly affect consumers. Pallone contends that the current system allows the release of oil for many reasons other than prices, notably to boost supplies during times of crisis.

“It’s time for new solutions,” he said.

Republicans disliked the idea.

”It’s a misuse of emergency reserves. They’re desperately trying to save themselves and they don’t deserve to be saved based on what they’ve done to the economy and families,” said Sen. John Barrasso, R-Wyoming, top Republican on the Senate Energy and Natural Resources Committee, of the economic reserve idea.

The overarching problem with all this,” De Haan said, is that tapping the current reserve, let alone a new one, involves Washington trying to fix a problem that is “out of their control.”

If the new reserve was created, Varshney saw several potential problems. Does the federal Energy Department have the ability to move quickly? How does the U.S. deal with foreign markets?

“We’re in a global market for oil,” he said. “To suggest we can control any other players in world…that’s proven not to be so.”

Oil prices move for several, often complex and hard to predict, reasons. Key to price changes is supply and demand.

In California, for instance, prices have been rising partly because refinery outages appear to have lowered the amount of gasoline produced by the refineries that supply the state.

Also in the mix: Location. Refinery problems don’t often have the same impact in other states, where oil from the gulf can flow more easily.

The Energy Department said in an analysis last year, “California refineries need to run at near full capacity to meet the state’s gasoline demand.”

The reserve plan is the latest effort by Harder and others to help bring down gasoline prices, which remain historically high in California. In May, Democrats passed tough legislation to crack down on gouging in the House, but it’s gone nowhere in the Senate. An effort led by Harder to suspend the federal gas tax, now 18.4 cents a gallon, has also been unsuccessful.