Sell the Whole Strategic Petroleum Reserve

Yesterday, in a coldly calculated political move, President Barack Obama ordered the release of 30 million barrels of oil from the 727-million barrel Strategic Petroleum Reserve. The idea is to push down the price of gasoline during the summer driving season and garner some polling points with voters. It might work. Oil prices did fall after the announcement.

Peter Van Doren, editor of the Cato Institute's journal Regulation, points out that "the reserve was never intended for price management." It was supposed to tide the country over if oil supplies from abroad were somehow cut off. However, as University of Wyoming economist Charles Mason points out, private companies have consistently held reserves of an average 325 million barrels of oil over the past 70 years. Mason concludes [PDF] that the companies holding reserves "are more likely to be motivated by attempts to smooth marginal production costs than by speculative motives."

Whatever their motives, the good news is that the oil inventories are there and the companies are bearing the risks for them.

Cato Senior Fellow Jerry Taylor argues:

"There is no need for a Strategic Petroleum Reserve, so let's sell while the selling is good and then shut the thing down."

Good idea.

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  • ||

    So the President would use the strategic petroleum reserve for crass political gain ?

  • ||

    NEVER speak of him that way!

  • ||

    Absolutely sickening, and it does indicate that we don't need the reserve. Otherwise, the shitstorm would be huge.

  • P B||

    If releasing oil, increasing demand, drives down prices why doesn't Pres. Obama just allow more drilling if he truly wants lower prices at the pump.

  • ||

    If he really wants to be popular with his base, he should take the reserve and return in to the ground from which it came. All will be in ecological balance again.

  • ||

    Yeah Obama, insert a long, thick, pipe deep into mother earth, and give her your "reserves". ...I'll be in my bunk

  • Jersey Patriot||

    Drilling takes a long time to bring additional oil, usually 5 years or so. Moreover, the next 1 million barrels of oil from the US is likely to either ANWR or some expensive unconventional oil. The oil in the SPR has already been tapped and stored. All you need to do is turn the spigot.

  • P B||

    As far as long term solutions and the effect on jobs and futures markets drilling would certainly increase supply

  • Phlogistan||

    Great talking point, the 5 years thing. I would recomend the millions of years one though for oil to "cook" under ground before its usable.

    3 months in Kansas for well to start producing from open ground to shipping product. But it's in fly over country so it doesnt count.

  • Brett L||

    At a rate of 120M bbl/year, we could pump it dry in just enough time to bring the next 1M bbl/day online. Perfect.

  • Brett||

    With all the talk about Libya I think a bigger issue is the heavy rain in Saskatchewan and Montana which has actually forced the shut down of oil around Estevan.

  • Appalachian Australian||

    Won't releasing the oil cause prices to go down, demand to go up, and therefore cause global warming?

    Mr. President, please think of the polar bears!

  • ||

    That's the beautifull irony here. The presidents that have released supplies from the SPO for the purposes of lowering prices have both been Democrats.

  • ||

    let's sell while the selling is good

    I suppose Mr Taylor has inside info showing that the price of oil is going down in the future?

  • West Texas||

    No kidding The first thing I thought when I heard this news was, "$5 gas in September instead of July!"

  • ||

    Now that's strategic.

  • ||

    I thought it was more tactical. In a kinetic sort of way.

  • ||

    But...but...Teh EVUL SPEKULATERS!

    / chad channeling

  • Mr Whipple®©™||

    Beat me to it.

  • OO||

    actually it pulled the rug out fm speculators who continued to bid-up prices despite balance in global supply & demand. and the EU & asia are following suit.

  • Stunned libtoid||

    but, but the FREEZ markets cant be artifically manipulated just like there's no collusion or anti-competitive practices. HATE. OBAMA.

  • ||

    Oil was already dipping a bit due to fears about Middle East instability ratcheting down somewhat. Eventually, markets get used to crises and price accordingly. Oil keeps flowing, no big deal.

  • Phlogistan||

    Hmm, a stable middle east is to be feared? Intresting..

    That sort of fear would go a long ways in explaining many things.

  • squishua||

    Reading comprehension fail.

    The fear about mideast instability was "ratcheted down." You know, the whole "Arab Spring" thing and concern it would spread to Saudi Arabia, etc.

  • ||

    So you're one of those people who believes that Peak Oil is all bullshit, then?

    It's a fairly small amount of oil, equivalent to what we'd get from allowing the small amount of drilling that Obama is blocking. Hopefully you're not one of those arguing that "drill baby drill" would have no effect, but this somehow does.

  • DRM||

    If Peak Oil weren't bullshit, the oil companies would be busy building copies of Sasol's Secunda.

  • Michael Ejercito||

    If Peak Oil weren't bullshit, the oil companies would be busy building copies of Sasol's Secunda.


    It is not bullshit.

    It is simply a straightforward application of economic principles. As Thomas Sowell explained:

    In some ultimate sense, the total quantity of resources must of course be declining. However, a resource that is going to run out centuries after it becomes obsolete, or a thousand years after the sun grows cold, is not a serious problem. If it is going to run out within some time period that is a matter of practical relevance, then this rising present value of the resource whose exhaustion looms ahead will automatically force conservation, without either public hysteria or political exhortation.

    Basic Economics by Thomas Sowell, page 190

    Production is declining due to the fact there is less oil available, and as a consequences prices rise, according to this principle reiterated by Sowell.

  • yonemoto||

    I don't understand either this, or the drill baby drill bullshit. Look. If the US is attacked and we hit peak oil, what is going to be powering all of our tanks, destroyers, and jet planes? They all use JP-8/JP-5. I want the strategic reserve to be there and for the country to be able to start drilling until we figure out nuclear fusion.

  • sevo||

    ..."until we figure out nuclear fusion."

    Only 20 years away, just as it always has been.

  • ||

    That's crap. It's only ten years away. And will be in ten years.

  • ||

    Fucking asymptotes, how do they work?

  • ||

    We'll have fusion once we perfect the asymptotic compensator.

  • Barely Suppressed Rage||

    Right after we perfect the retro-encabulator.

  • Doc Brown||

    My Flux Capacitor will end the energy crisis!

  • sevo||

    I thought it was the turbo-entabulator.

  • ||

    You can have my nested threadambulator.

  • ||

    Hmm...$65B towards the national debt? Nice, but it'd hardly scratch the surface...

  • ||

    Crap. That'll teach me to answer the phone before posting.

  • West Texas||

    I'd like to know where Obama got this magical oil that somehow, by virtue of being stored in a small finite amount in a salt dome in Louisiana, has a more significant effect on the world price, than would oil that's still underground in a natural formation somewhere and in quantities that are exponentially larger. Hmmmmmmm

  • OO||

    because the price runup had nothing to do w supply & demand which remain balanced. so this popped the speculative runup since the traders will abandon long positions & go short

  • Jersey Patriot||

    Actually, the price run-up has everything to do with supply and demand. More people are demanding, while less supply is being exported.

  • ||

    OO: For an explanation see my April 26 column, Whither Gasoline Prices? I quote oil market analyst Michael Evans from Citibank who suggested, “Primarily what we are seeing is a geopolitical risk premium being added onto the price of petroleum."

    He predicted that price would likely fall back to around $80 per barrel later this year. Seems to have been heading that way without the president's help.

  • Tim||

    This is like cash for clunkers, we'll get a painful market reset at the end of the program.

  • squishua||

    Yeah, but this way Obomba gets to claim credit for it. Columbus Egg Balance.

  • Mr Whipple®©™||

    And which h ones would that be? The ones that work for the Goldman sachs or the JP Morgue?

  • Jersey Patriot||

    It's about flowrates and time. You can open the SPR tomorrow for another million barrels of oil per day. Drilling just doesn't work like that.

  • ||

    Of course, if you're delusional like OO and think it's about speculation and that "supply and demand are balanced" in the near term, then drilling should be just as good as the SPR, since OO thinks that the higher price is about speculation.

  • Appalachian Australian||

    Aren't supply and demand balanced by definition?

    I demand oil at $1/bbl, therefore there is an imbalance of supply due to speculators.

  • ||

    That would only be $65,430,000,000 at current price/bbl, not that it would stay at that price for too long. What, that's about a week's worth of operating expenses for the US?

    Not that it's an argument against selling it, but it's chump change these days, sadly.

  • Tim||

    We need the oil to fuel the carriers that will force the enemy countries to sell us the oil we need to fuel our carriers.

  • ||

    I think all our carriers are nukes.

  • Phlogistan||

    The Carriers are.. Some of the munitions are.. The planes are not.

  • Brett L||

    I think the escort fleets are about half and half.

  • Phlogistan||

    Only the Submarines. The US nuclear powered cruisers have all been retired. The DD's and FFG's in current service are conventionaly powered.

  • Tim||

    We need the oil to fuel the battleships that will force the enemy countries to sell us the oil we need to fuel our battleships.

    Better?

  • Phlogistan||

    Perfect

  • Appalachian Australian||

    I like the sound of this. Very Keynesian. Demand will create its own supply, or something like that.

  • ||

    Do these clowns have any notion of how incoherent they are? One day, the Dipshit-in-Chief wants cars to get 60 mpg, and the next, he's trying to drive the pump price of gas down.

  • ||

    We're back to my used car salesman example. He doesn't have to be coherent.

  • ||

    One day, he's against wars without Congress, and the next, he's starting one. Eh.

    Was amused to see Jim McDermott, of all people, loudly supporting the War in Libya authorization. I expected Jim Moran, Norm Dicks, et al.

  • Fatty Bolger||

    At least he closed Gitmo.

  • sevo||

    And real quick, too!

  • ||

    P Brooks. No.

  • ||

    According to the morons on CNBC, we need to save that oil for commercial airliners, and run everything else on natural gas, because T Boondoggle Pickens needs the money.

  • EDG reppin' LBC||

    CNBC has been polihing Pickens' balls for years. It's one of the reasons I stopped watching the channel. If people want nat gas, then they will make a market for it. Giving so much airtime to Pickens to shill his product got boring.

  • Appalachian Australian||

    That's rather silly, as piston engines can easily consume natural gas and obviously turbines can run on natural gas as well.

    The market for natural gas is developing but it will take a few years for the infrastructure to start bearing visible fruit. You can buy natural gas Hondas in southern California and fill them up there too.

  • Mr Whipple®©™||

    This was done primarily for the French and Italians to make up for the lost production from Libya. Obummer takes his cues from the Eurocrats.

  • Sudden||

    {insert joke about absurd sexual behavior of Burlesconi, Sarkozy, sundry other French & Italian pols}

    {insert punchline The Eurocrats}

    I think that makes too much sense and doesn't do justice to the irony of the Aristocrats joke...

  • NoVAHockey||

    The rate of consumption in the US is about 20 million barrels/day. This isn't going to influence prices at the pump at all.

  • Terr||

    I was thinking the same thing last night. After reading about Obama wanting to sell the oil, I looked up that daily consumption figure and just laughed my ass off. Unless that figure is way off, this is completely fucking retarded.

  • ||

    As I noted below, my guess is that Obama's advisors saw that prices have been dropping since mid-May and brough this out with in the hope that enough people would believe that he was the cause of the price drop.

    He can get away with this because there does seem to be a serious time lage between when prices start to fall and people notice it. Most of my friends are still whingeing about high gas prices but the a good forty cents lower here in Taintsville than they were in May.

  • Mr Whipple®©™||

    I say forget about Libya and start bombing France. Carla Bruni can come hide out at my house.

  • Coyote||

    My understanding is that speculators can't actually affect the sale price of oil unless they are actually buying and hoarding physical barrels.

    So, wouldn't that make the US government the biggest speculator?

    The idea that futures traders on wall street are driving up prices is like saying that gamblers in Vegas are influencing the outcome of baseball games.

  • Phlogistan||

    I snorted

  • Rock Action ||

    When you're a Democrat, and the network news has turned against your economic program -- and they did last night to the point where I thought Diane Sawyer was actually going to laugh -- you're in a world of political trouble.

  • ||

    Diane Sawyer...do tell...what happened.

  • Rock Action ||

    Yeah, I unfortunately caught bits of CBS and ABC last night. I thought Sawyer gave a rueful smile and turned her head to the side like she does when something doesn't pass the smell test. I know at least one of the two networks trotted out an economist who was extraordinarily skeptical about the move and the economy, especially purchasing power, and after him, they cut to the Bernank at a podium.

  • ||

    The logic of this strategy is simple. The head of household has spent every nickel of cash in the piggy bank, maxed out his credit cards and home equity, and now is at the pawn shop selling the furniture.

  • Phlogistan||

    Cant afford the gas yet to transport furniture to the pawn shop.. Hence the release.

  • Mr Whipple®©™||

    IIRC, a tanker company was just cited for hoarding oil to drive up prices, then dumping it on the market to drive them down. Of corset they were speculating on futures to match their actions.

  • Mr Whipple®©™||

    My question is, was Blythe in the loop?

  • Kroneborge||

    Seeing as how our economy doesn't work without oil, I think it's entirely reasonable to make sure we have a big enough reserve to get us through a rough patch is supplies are disrupted.

    IMO, nothing wrong at all with a bit of planning for the future.

  • sevo||

    "IMO, nothing wrong at all with a bit of planning for the future."

    Agreed. So long as the government has nothing whatsoever to do with it.

  • Kroneborge||

    Why is that again?

    I think there's a lot of things government shouldn't be doing. But I don't have a problem at all with a small stockpile of oil.

    If you're worried about the constitionality of it, why think of it as a military stockpile (which I believe is one of it's prime purposes)

  • ||

    I don't have a problem with a strategic stockpile either.

    My problem is with politicians using it as a political slush fund.

    This is one issue that the Democrats are definitely big offenders on. Bill Clinton released oil from the SPO in the summer before the 2000 election hoping that Al Gore would gain some points. At least Bush only used it right after katrina and Rita when supplies were actually disrupted, not just going through cyclical price blips.

  • Michael Ejercito||

    I think there's a lot of things government shouldn't be doing. But I don't have a problem at all with a small stockpile of oil.


    That makes sense.

    That is why, Navy ships typically deploy from port with slightly more crewmembers than needed to run the ship's essential functions(in case some crew members become unable to do their jobs) more provisions than the crew members need (in case the deployment lasts longer than expected) and more bunk space than needed for the crew (in case new crew members have to be added at the last minute)

  • Barely Suppressed Rage||

    The idea is to push down the price of gasoline during the summer driving season

    How the hell is releasing a measly 30 million gallons going to do that? That will supply the USA's demand for a whole day and a half.

    This fucking dipshit doesn't have the slightest fucking clue what he's doing, either internationally or domestically. His foreign policy is incoherent; his domestic policy is just plain stupid and inept.

  • GregorySmith3||

    Sell it all? That's crazy! We might as well get rid of Fort Knox if we're following that logic.

    http://libertarians4freedom.blogspot.com/

  • Appalachian Australian||

    The government does not need to be hoarding gold, especially when the government doesn't have any obligations backed with gold (other than the lease of G'tmo, which the President keeps saying he's going to close).

    I can't tell if you are being sarcastic or if you are actually a big-government statist. BTW, can you try having an actually libertarian post on your blog sometime?

  • Phlogistan||

    If we followed logic at all we wouldnt be posting here, I think...

  • ||

    Releasing oil from the stockpile now seems like curious timing, as well, given that prices peaked in the first half of May and have been steadily dropping since.

    This seems to be another instance of Obama seeing a parade and getting in front of it and claiming that he's the leader.

  • Skip||

    Remember when Bush did this or tried to do it (don't remember) and lefties acted like it was betraying the country? Any comparable sturm und drang?

  • Skip||

    Remember when Bush did this or tried to do it (don't remember) and lefties acted like it was betraying the country? Any comparable sturm und drang?

  • ||

    A metric ton of stupid on display in this thread.

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