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

42 Pages Posted: 8 Jan 2021

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 4 versions of this paper

Date Written: November 15, 2020

Abstract

We study the effects 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. We show that historically SPR policy interventions, defined as sequences of exogenous SPR shocks during selected periods, have helped stabilize the price of oil. Their effect on the price of oil, however, has been modest. For example, the cumulative effect of the SPR releases after the invasion of Kuwait in 1990 was a reduction of $2/barrel in the real price of oil after 7 months. Whereas emergency drawdowns tend to lower the real price of oil, we find that exchanges tend to raise the real price of oil in the long run. We also provide a detailed analysis of the benefits of the 2018 White House proposal to sell off half of the SPR within the next decade. We show that the expected fiscal benefits of this plan are somewhat higher than the revenue of $16.6 billion dollars projected by the White House.

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

JEL Classification: Q38, Q43, E62

Suggested Citation

Kilian, Lutz and Zhou, Xiaoqing, Does Drawing Down the U.S. Strategic Petroleum Reserve Help Stabilize Oil Prices? (November 15, 2020). CFS Working Paper, No. 647, 2020, Available at SSRN: https://ssrn.com/abstract=3731017 or http://dx.doi.org/10.2139/ssrn.3731017

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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