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The U.S. is refilling the Strategic Petroleum Reserves. What purpose can they serve?

AYESHA RASCOE, HOST:

Buy low, sell high. Or buy low and stash it away in giant caverns under Texas and Louisiana. That's the question now for America's Strategic Petroleum Reserve, created after the oil shocks of the early '70s. Joe Weisenthal is executive editor of news for Bloomberg Digital, and he sees a shift in the SPR's purpose. He joins us now. Welcome to the program.

JOE WEISENTHAL: Thank you so much for having me.

RASCOE: First, let's look at the current conditions. The Biden administration just announced it's going to buy 3.3 million barrels of oil to refill the SPR. That's after canceling similar plans in early April. Why that earlier cancellation?

WEISENTHAL: Historically speaking, the U.S. was a very big oil importer. And so the Strategic Petroleum Reserve was this almost, like, geopolitical hedge. Like if the U.S. gets cut off from oil for some reason, then, OK, we have this stockpile so that we can continue to consume oil and keep the economy functioning. These days, obviously, the U.S. is the biggest oil producer in the world, has very little need for external oil, a nd so the logic of even having an SPR has changed. Let's use the SPR to sell oil when oil prices get high, so we can depress the price, but also crucially, let's use the SPR to buy oil when prices get low, because the thing that they wanted to avoid is to crush the price and have domestic producers cut back. And so if you go in both directions, selling high, which is always a good idea and buying low, which tends to be a good idea, then you can stabilize that oil price so that we don't get crippling high oil prices for consumers while also keeping a floor under the price so that you could see production going. And I think when you look at the last month, you see that in action. So when oil was in the mid-80s, well, oil prices are high enough, so no need to buy here. And then when they dip down into the mid-70s as they have in recent days, then it makes sense to use this moment to buy oil and keep that floor under the price.

RASCOE: OK, so they canceled the plans in April because there was no need to do that at that moment. Now, as you were saying, the SPR was intended to be this emergency thing, right?

WEISENTHAL: Sure. So I think in the past, and even still, there has been a great degree of cynicism when presidents sell down the oil because they think is this actually an emergency we're trying to stave off? Or you just trying to make life cheaper for gasoline drivers? I think right now, there's probably arguably less case for the sort of cynical view because again, If we're a big producer of oil in the U.S. and we're not so reliant on imports, then what is the even conception of emergency?

RASCOE: Well, how big of an impact do these sorts of sales or buys have? What does that do for consumers?

WEISENTHAL: You know, this planned buy that the Biden administration did - it's not going to immediately show up anywhere for consumers. It's not like, oh, they're going to buy 3 million barrels, so suddenly, gasoline prices are going to shoot up. There are other factors - geopolitics, of course, what OPEC is thinking about, Saudi Arabia's needs, Russia, all of these things are clearly going to have significant impact on the price of oil. What I think this does, though, is it just sort of continues to steady the price.

RASCOE: Could the way the SPR is now being used - setting a price ceiling to a certain extent, price floor or at least trying to do that - could that sort of model be applied to other commodities?

WEISENTHAL: Yeah. People are talking about this more, and I think it's very interesting, and it's probably one of the most important things to be watching in terms of, like, sort of U.S. energy commodities policy. So lithium would obviously be big one for the lithium ion batteries, other commodities like cobalt that are important, and I don't think we really have the same mechanisms in place to think about stability. There's no futures market for lithium in the U.S. There's no futures market for cobalt in the U.S. And so you don't have the same financial instruments where a buyer or a seller can lock in a price and ensure that stability. But if we take seriously that we're going to need a lot more of these critical minerals, if we take seriously that volatility in the day-to-day price is not conducive to more production, then people are thinking, well, can we build out similar SPR-like models, the financial aspect of it, the physical storage aspect for some of these other critical commodities that will be needed for the energy transition?

RASCOE: That's Bloomberg Digital's Joe Weisenthal. He's also cohost of their "Odd Lots" podcast. Thank you for joining us.

WEISENTHAL: Thank you for having me. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

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Ayesha Rascoe is a White House correspondent for NPR. She is currently covering her third presidential administration. Rascoe's White House coverage has included a number of high profile foreign trips, including President Trump's 2019 summit with North Korean leader Kim Jong Un in Hanoi, Vietnam, and President Obama's final NATO summit in Warsaw, Poland in 2016. As a part of the White House team, she's also a regular on the NPR Politics Podcast.