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Testing substitution between private and public storage in the U.S. oil market: A study on the U.S. Strategic Petroleum Reserve

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  • Scheitrum, Daniel Paul
  • Carter, Colin A.
  • Jaffe, Amy Myers

Abstract

The U.S. Strategic Petroleum Reserve (SPR) was established in 1975 to mitigate major oil supply disruptions and to deter the use of energy as a geopolitical “weapon.” However, policies towards the utilization of strategic oil stocks have varied under different presidencies and the SPR has often not been used in sufficient quantity or soon enough to avoid the negative economic consequences that can follow oil supply outages. Economic theory suggests that the existence of public stockpiles of commodities will alter inventory management practices of private market participants. This paper models private crude oil storage in the United States and estimates the private storage response to presidential announcements regarding the SPR. We investigate the incidence of different kinds of announcement events including releases and test sales from the SPR, announced changes in fill rates, and changes of presidency and how these events impact private land-based storage in the United States by region (PADD) as well floating storage. We find significant substitution between private and public stocks for crude oil and find that announcement events are associated with observable changes in private inventory levels, with implications for public policy choices and geopolitical strategies.

Suggested Citation

  • Scheitrum, Daniel Paul & Carter, Colin A. & Jaffe, Amy Myers, 2017. "Testing substitution between private and public storage in the U.S. oil market: A study on the U.S. Strategic Petroleum Reserve," Energy Economics, Elsevier, vol. 64(C), pages 483-493.
    • Handle: RePEc:eee:eneeco:v:64:y:2017:i:c:p:483-493
    DOI: 10.1016/j.eneco.2015.10.015
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    1. Wei, Xinxing & Shi, Xilin & Li, Yinping & Li, Peng & Ban, Shengnan & Zhao, Kai & Ma, Hongling & Liu, Hejuan & Yang, Chunhe, 2023. "A comprehensive feasibility evaluation of salt cavern oil energy storage system in China," Applied Energy, Elsevier, vol. 351(C).
    2. Richard G. Newell & Brian C. Prest, 2017. "Informing SPR Policy Through Oil Futures and Inventory Dynamics," NBER Working Papers 23974, National Bureau of Economic Research, Inc.
    3. Liu, Yang & Dilanchiev, Azer & Xu, Kaifei & Hajiyeva, Aytan Merdan, 2022. "Financing SMEs and business development as new post Covid-19 economic recovery determinants," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 554-567.
    4. Mei-Mei Xue & Gang Wu & Qian Wang & Yun-Fei Yao & Qiao-Mei Liang, 2019. "Socioeconomic impacts of a shortage in imported oil supply: case of China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 99(3), pages 1415-1430, December.

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    More about this item

    Keywords

    Crude oil; Storage; Strategic Petroleum Reserve; Geopolitics of oil; Futures;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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