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StrategyDriven Podcast Series

StrategyDriven Editorial Perspective – Self Inflicted Uncertainty

On February 2, Dow Jones reported the Obama Administration’s decision not to expand the U.S. Strategic Petroleum Reserve as had been provisioned under the Energy Act of 20051. Energy Secretary Steven Chu indicated the basis for the decision was that the current reserve of 727 million barrels of crude oil met international standards.

(The International Energy Agency established a 90 day crude oil reserve standard. Filled to capacity, the U.S. Strategic Petroleum Reserve covers approximately 80 days of imports.)

At first glance, this decision may appear to be ill conceived. Rising oil consumption combined with no additional storage capacity suggests that the U.S. would fall short of meeting the IEA reserve standard with ever increasing severity. Closer examination of U.S. oil consumption relative to the volume of its strategic petroleum reserve indicates that relatively small projected growth in petroleum consumption in the next 20 years supports the decision2. (See Figure 1: U.S. Strategic Petroleum Reserve Compared to Consumption)
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