Does Drawing Down the U.S. Strategic Petroleum Reserve Help Stabilize Oil Prices?

39 Pages Posted: 13 May 2020

See all articles by Lutz Kilian

Lutz Kilian

Federal Reserve Banks - Federal Reserve Bank of Dallas; Centre for Economic Policy Research (CEPR)

Xiaoqing Zhou

Federal Reserve Banks - Federal Reserve Bank of Dallas

Multiple version iconThere are 3 versions of this paper

Date Written: December, 2019

Abstract

We study the efficacy of releases from the U.S. Strategic Petroleum Reserve (SPR) within the context of fully specified models of the global oil market that explicitly allow for storage demand as well as unanticipated changes in the SPR. Using novel identifying strategies and evaluation methods, we examine seven questions. First, how much have exogenous shocks to the SPR contributed to the variability in the real price of oil? Second, how much would a one-time exogenous reduction in the SPR lower the real price of oil? Third, are exogenous SPR releases partially or fully offset by increases in private sector oil inventories and how does this response affect the transmission of SPR policy shocks? Fourth, how effective were actual SPR policy interventions, consisting of sequences of exogenous changes in the SPR, at lowering the real price of oil? Fifth, are there differences in the effectiveness of SPR emergency drawdowns and SPR exchanges? Sixth, how much did the creation and expansion of the SPR contribute to higher real oil prices? Finally, how much would selling half of the oil in the SPR, as recently proposed by the White House, lower the global price of oil (and hence the U.S. price of motor gasoline) and how much fiscal revenue would it generate?

Keywords: crude oil, expectations, oil inventories, storage, policy intervention, SPR, fiscal policy

JEL Classification: Q43, E62, Q38

Suggested Citation

Kilian, Lutz and Zhou, Xiaoqing, Does Drawing Down the U.S. Strategic Petroleum Reserve Help Stabilize Oil Prices? (December, 2019). FRB of Dallas Working Paper No. 1916, Available at SSRN: https://ssrn.com/abstract=3595235 or http://dx.doi.org/10.24149/wp1916

Lutz Kilian (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Xiaoqing Zhou

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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