Strategic Oil Reserves

Strategic Oil Reserves

Subject – Economy

Context – The Biden administration is considering tapping the US Strategic Petroleum Reserve (SPR) to cool oil prices in conjunction with other big consumers like China and India.

Concept –

• Besides the United States, the other 29 member countries in the International Energy Agency (IEA), including the United Kingdom, Germany, Japan and Australia, are required to hold oil in emergency reserves equivalent to 90 days of net oil imports.
• Japan has one of the largest reserves after China and the United States.
• China, an associate member of the IEA and the world’s second-leading oil consumer, created its SPR 15 years ago and held its first oil reserve auction in September.
• Another IEA associate member, India, the third-biggest oil importer and consumer, also maintains a reserve.
• Overall, OECD governments held more than 1.5 billion barrels of crude as of September, according to the IEA. That is about 15 days of global demand prior to the pandemic.

What is the IEA’s role in national SPRs?

• The IEA helps coordinate member releases, provides data on levels and plays other roles.
• There are typically three ways to maintain SPR levels to meet the 90-day requirement, according to the IEA website:
  • commercial stocks held by refiners,
  • those held by the government and agency stocks,
  • with countries choosing which balance to maintain.
• The stockholding structure is peer-reviewed every five years among members.
• Measures to restrain demand or otherwise help supply can also be taken, the IEA says.
  • These may include calls for voluntary fuel savings, fuel-switching such as oil to gas for power generation or “surge production” to quickly tap underground reserves.
  • Relaxing environmental standards can also help make supplies more flexible, the IEA says.

To know about Strategic Oil Reserves of India, please refer October 2021 DPN.