U.S.-Flag Cargo Ship Eye Any Tapping of SPR

March 6, 2012 09:17 AM
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U.S. shippers jockeying for position if President Obama taps the SPR

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

The possibility that President Obama could order an oil release this year from the Strategic Petroleum Reserve (SPR) to temper the price rise and/or in case Iran blocks oil supplies has US-flagged ship lines taking initial measures to make sure they get the cargo traffic, The Journal of Commerce reported.

Background: The Obama administration last tapped the SPR on June 24, 2011 – for perspective, the national average price of a gallon of gasoline at the time was $3.60 (current average price is $3.74). The Jones Act requires US-built vessels to carry shipments between US ports, but last year the administration issued waivers that put its SPR oil sales aboard foreign carriers. But this time, the American Maritime Partnership is telling federal agencies that dozens of US ships are available to carry SPR oil from storage terminals to refiners. (Link to what the AMP says about supporting the Jones Act.)

The Jones Act is a perennial issue in Congress. The Act requires that all waterborne shipping between points in the United States be carried by vessels built in the United States and owned and operated by Americans. The purpose of the Act is to ensure that the nation has a sufficient merchant marine and shipbuilding base to protect the nation's defense and commercial interests. Critics claim that the Act does not accomplish this goal and furthermore raises shipping costs, thereby making US farmers and manufacturers less competitive. Jones Act supporters claim that the Act is needed to foster a domestic shipbuilding base that is vital for national security. Despite economic arguments against the Jones Act, efforts to repeal the Act have not been successful.

No actual oil supply disruption has yet occurred this year, and most observers expect Obama will not tap the SPR until and unless gasoline prices continue to surge, or if Iran would take action to halt shipments via the Strait of Hormuz. Obama would also have to coordinate any such move with the International Energy Agency.

Meanwhile, House and Senate Democrats are urging federal regulators to implement limits on speculative trading in energy futures markets that the lawmakers call a major factor behind the run-up in gasoline prices.

In a March 5 letter to the Commodity Futures Trading Commission (CFTC), 23 senators and 45 House members underscores how gas prices have soared to the top of the political agenda on Capitol Hill and the campaign trail. “It is one of your primary duties — indeed, perhaps your most important — to ensure that the prices Americans pay for gasoline and heating oil are fair, and that the markets in which prices are discovered operate free from fraud, abuse and manipulation,” the letter said.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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