What are Global Strategic Petroleum Reserves?

Global Strategic Petroleum Reserves (GSPR) are stockpiles of crude oil maintained by countries or private industries as a hedge against potential future energy crises.

Understanding Global Strategic Petroleum Reserves (GSPR)

Global Strategic Petroleum Reserves represent a defense against any event decreases future oil production, including physical or economic actions which disrupt any part of the production process from exploration and development through refining. Strategic reserves do not get counted among a nation's or company's proven oil reserves, as proven reserves must be available for production by definition.

The interconnected nature of international oil markets make disruptions in any given area likely to affect prices in a much wider geography. In the event of a major disruption due to political or natural disaster, countries holding reserves could increase the available supply of oil by releasing some portion of their reserves, with the expectation that the increased supply would moderate price increases caused by the disaster. An agreement among members of the International Energy Agency (IEA) requires any country that does not export more reserves than it imports to maintain reserves equivalent to each country's average 90-day crude oil imports for the previous year.

Examples of 'Global Strategic Petroleum Reserves'

The United States maintains a strategic petroleum reserve in a complex of caves located along the Gulf Coast. At its maximum inventory, the U.S. reserve held 726.6 million barrels of oil. Created in response to the oil crisis caused by the Arab Oil Embargo of 1973, the site received its first oil in 1977. Previous record reserve amounts occurred after buildups that anticipated hurricane-driven disruptions in the Gulf of Mexico, including Hurricane Katrina in 2005 and Hurricane Gustav in 2008. In both cases, the disruptions caused by the hurricanes led to releases from the reserves. The U.S. Department of Energy (DOE), which oversees the reserve, replenishes the supplies over time after a release. For example, it took three years, from fall of 2005 through April 2008, to replace the 20.8 million barrels released in response to Hurricane Katrina.

Releases from the strategic petroleum reserves generally take the form of either exchanges or outright sales, depending on the nature of the disaster to which the release responds. In an exchange, the reserve effectively offers a loan of oil to a commercial supplier. To qualify for an exchange, the disruption must be outside a supplier's control and the release of oil must serve the public interest. Suppliers receiving an exchange must repay the oil they receive as a loan along with additional premium barrels which serve as a form of interest on the loan. The DOE also may release crude oil by selling it directly to commercial suppliers via an online competitive bidding process.