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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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    2. Newell, Richard G. & Prest, Brian C., 2017. "Informing SPR Policy through Oil Futures and Inventory Dynamics," RFF Working Paper Series 17-19, Resources for the Future.
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    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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