How to Calm Oil Markets

The Strategic Petroleum Reserve is the world’s largest emergency supply of crude oil. In huge underground salt caverns along the Gulf of Mexico, the American federal government can store up to 714 million barrels, more than what the country uses in one month. Historically, the SPR has been tapped at the discretion of the president when natural disasters or crises cause the price of oil for consumers to spike.

But when Russia invaded Ukraine and oil prices went haywire, Arnab Datta and Skanda Amarnath proposed a novel idea: what if the SPR wasn’t just used as a stockpile of a commodity? If it used its ability to acquire oil strategically, could it support American industry and calm oil markets? Today, we talked to both of them.

Timestamps:

(00:00) Introduction

(00:40) How do oil markets work?

(02:25) How has the SPR been used historically?

(07:42) Why oil investment kept dropping

(16:53) Arnab and Skanda's big idea

(20:55) Convincing the Biden administration

(23:45) "Fixed-price forward contracts"

(34:54) Isn't the SPR too small to shape oil markets?

(42:10) The SPR pilot buy fails

(51:09) A more aggressive approach

(58:01) Keeping the political coalition together

(01:02:26) The importance of elite media

(01:09:43) Did the SPR "beat OPEC"?

(01:12:52) Lessons for policy advocates