NPR's Danielle Kurtzleben speaks with Kevin Book of ClearView Energy about the United States' dwindling oil reserves as they hit the lowest level seen in more than four decades.

Transcript

DANIELLE KURTZLEBEN, HOST:

The Strategic Petroleum Reserves in the U.S. have hit their lowest level in more than four decades. They dropped earlier this month to under 300 million barrels, down from 415 million barrels at the start of the year. As the war with Iran and uncertainty over the Strait of Hormuz continue, what does this mean for the U.S. and consumers across the nation? Kevin Book is managing director of ClearView Energy Partners, a firm that analyzes energy markets, and he joins us now to discuss. Thanks for being with us, Kevin.

KEVIN BOOK: Great to join you, Danielle.

KURTZLEBEN: So let's start with this. How serious is it to have the reserves drop to these levels?

BOOK: Well, it's a national security asset for use in times of shortage, and this is a time of shortage. But as you point out, it's at the lowest level that it's been at in four decades. But more importantly, it's on its way down. It - when it was last at this level, it was on its way up. The reserve is now at less than half the volume it was at the start of the Biden administration and just slightly less than half of where it was at the start of the Ukraine war. So we've used a lot of our oil insurance already.

KURTZLEBEN: How does this compare to history, what we're seeing now?

BOOK: Well, the last time it was this low, the federal government was filling the reserve for the first time. So this is really the first time we've taken it down from its peak above 700 million barrels during the Bush administration and early Obama years. What we have had are two very significant energy wars that have required very significant energy responses. And the Biden administration did a 180-million-barrel sale. The Trump administration is doing a 172-million-barrel exchange. Now, there is a difference. The exchange will come back. It's a loan from the reserve, and it'll come back with interest in the form of oil.

KURTZLEBEN: How much has tapping these reserves affected gas prices?

BOOK: It's kind of a counterfactual. You have to say, well, what - where would we be otherwise? And it's not just the U.S. that is playing in the market right now. The International Energy Agency is working in a collective action that began in March to distribute more than 400 million barrels of oil and refined products. And that will continue probably for another couple of months. It's about 75% of the way done. I think the easiest way to put it, Danielle, is that prices would probably be significantly higher, maybe on the order of $10 or even $15 a barrel higher.

KURTZLEBEN: How are we affecting the global petroleum market?

BOOK: Well, the U.S. is nearly half of the strategic release that's being coordinated across more than 30 countries. And so as a result, it's a pretty significant contribution. But in terms of what's going on, the Strait of Hormuz disruption and the associated disruptions in the Red Sea are stopping somewhere north of 5 to 6 million barrels per day of output that otherwise would be going into the world. And the global strategic releases from the International Energy Agency partners are covering probably no more than half of that, so there's still a pretty big gap. Some of that gap's being made up by China consuming or importing less oil, but there's still a hole in supply. We're not closing the gap from this crisis with strategic barrels alone.

KURTZLEBEN: There was this report from the Department of Energy. It shows that there has been a drawdown of the nation's reserves every month since March. So is it a viable strategy to just keep drawing down those reserves until the Strait of Hormuz finally reopens?

BOOK: Well, the commitment that the United States made was for 172 million barrels. And at this point, there are still 38 and change left to be allocated and another 17 or so that have been allocated that are yet to flow. So roughly another 55 million barrels. That will leave the U.S. Strategic Reserve, if it goes all the way through, down at something like 243 million barrels. That isn't a lot of extra insurance for the next crisis, and so you have to think about it this way. Flowing barrels are replenished. Stockpiles can be depleted. We only have so much oil insurance before the policy is used up.

KURTZLEBEN: Once the Iran war is over, once the Strait of Hormuz is reopened, the U.S. will want to replenish that reserve. So does that mean using up a bunch of the available petroleum that comes out on the market to go into the reserve?

BOOK: Well, Danielle, typically, the outflows happen much faster than the inflows. And part of the reason for that is that nobody wants to buy when the price is rising, and if everybody's buying at once, the price of oil will go up. But there is an interesting dynamic that has some bearing on your question. Other importing economies are going to want to build and expand their reserves, too, which means that after this is over, the prices might not fall all the way back down to where you would expect them to go because part of the demand that will be in the world will be governments replenishing and expanding stockpiles everywhere.

KURTZLEBEN: That's Kevin Book of ClearView Energy Partners. Thank you for speaking with us.

BOOK: Oh, it was a pleasure. Thanks for having me.

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