Part-Time Pundit: Misuse of the Strategic Petroleum Reserve

« Save Our Borders Blogburst: Immigration Reform | Main | 9/11: Still Not the Jews' Fault »

August 29, 2005

Misuse of the Strategic Petroleum Reserve

With rising oil prices and Hurricane Katrina, there are the usual calls for tapping the
Strategic Petroleum Reserve (SPR). Sen. Schumer asked Bush to release oil to "ease higher prices" which shows that he doesn't understand the point of having the reserve to begin with.

The reserve was established in 1975 after the Arab oil embargo as a means of protection when countries decide to hit us in our oil supply. Taking that protection away now would make any such efforts much greater in effect and much more appealing. The SPR was never intended nor should be used as a means of price manipulation of the gas markets in the United States.

First, let's say you get a 20 cent reduction in gas prices by tapping the reserve. Would it even be politically feasible to back off until the reserve was gone and bring that 20 cent reduction back? Doubtful. Gas prices have been inflated for a long time now and it is not likely that the price is going to come down that much in the near future, not until regulators allow the construction of more refineries.

Second, it takes 15 days from the order until the oil starts to hit the markets. The SPR can only sustain its highest rate of drawdown for 90 days and will be completed depleted in 180 days. The price affect is negligible during periods of drawdown and there are no instant real effects (save psychological). What the SPR is good for is dealing with supply cutoffs, not dealing with price manipulation. Maximum drawdown would only supply the United States with a maximum of 20% of its oil consumption per day. That would be good for dealing with a disruption of oil supplies by a hurricane not to counteract long-term market pressures.

With Venezuela threatening an oil embargo and the situation as it is in Iraq, tapping the only source of protection to our oil supplies by foreign manipulators is only encouraging them to go ahead and attack our oil supplies.

Posted by John Bambenek at August 29, 2005 2:28 PM

Trackback Pings

TrackBack URL for this entry:
http://jcb.pentex-net.com/mt/mt-tb.cgi/740

Comments

EL MIRAGE, Ariz. (Reuters) - The White House said Monday it was willing to use the government's emergency oil stockpile to help refiners hurt by Hurricane Katrina's rampage through the Gulf of Mexico, but that it was too early to decide if or how much crude should be released.

http://www.breitbart.com/news/2005/08/29/MTFH70154_2005-08-29_18-40-03_N29220403.html

It looks like the White House "doesn't understand the point of having the reserve to begin with" either. Are you going to correct your headline to show that the White House is also "Jeopardizing American Security"?

RESPONSE:

No, because helping "refiners hurt by Hurricane Katrina" is a far cry from alleviating prices.

You missed the point. Supply problems is what it is for, not price pressures.

Posted by: RogerMDillion at August 29, 2005 2:39 PM

Actually, it seems like you don't understand what a reserve can be used for. There isn't a lot of oil in this reserve. If a country decided to hold back on oil production, it wouldn't take long for us to use up the reserve. However, in the case of a hurricane the oil is interrupted for a week or so, and the oil can be released so that the supply isn't effected very much. The reserve can be replenished after oil operations are back up to normal levels. The cost of oil isn't as big of an issue as the availability of oil...

RESPONSE:

Well that's somewhat my point. It's not to be used for price pressures because it can't be done long-term (more than 180 days). If we had a permanent problem, then we'd have to do something else, but with 6 month we could figure out another alternative.

Posted by: Dr. Forbush at August 29, 2005 4:02 PM