Hands off the oil reserve
Whenever gasoline prices spike, it’s a pretty good bet that politicians are going to propose tapping the Strategic Petroleum Reserve. This time around, the talk started with Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy and Natural Resources Committee, who last week urged President Obama to consider selling oil from the reserve as a way to stabilize prices. Then on Sunday, White House Chief of Staff William Daley said on NBC’s “Meet the Press” that the Obama administration is “considering” dipping into the reserve.
We hope this idea doesn’t get past the talking stages. There is no compelling reason for the U.S. to draw upon its emergency oil supplies.
The reserve was created in response to the 1973 Arab oil embargo, as a hedge against serious disruptions in the oil market. In recent years, it has been tapped in the wake of hurricanes that damaged U.S. production, such as Gustav and Ike in 2008 and Katrina in 2005. What’s affecting the market now is a sort of man-made hurricane: a rebellion in Libya that has cut off a key source of European oil. Yet it’s a mistake to think that this is the only reason prices are rising.
It was wholly predictable that as the world economy started to recover, gasoline prices would go up. Developing countries such as India and China are emerging from the slowdown quickly, and demand for automobiles there is soaring — General Motors now sells more cars in China than it does in the United States. The spike caused by the Libyan turmoil will probably be temporary, but gas prices will stay on an upward trajectory regardless. That’s why it’s critical for Americans to focus on efficiency and alternative energy sources.
But that’s a long-term solution. Wouldn’t tapping the reserve bring down the high gas prices that are hurting the recovery in the short term? Possibly, but not likely. There is no shortage of oil in the U.S. In fact, the country’s crude stockpile in the most current week was 1.4% higher than at the same time last year, according to the Department of Energy. This suggests that an influx of new supply from the reserve isn’t particularly needed and probably wouldn’t have much of an impact on oil prices. And a sale would harm the nation’s capacity to deal with a more serious emergency down the road, one that actually does put a crimp in supplies. The reserve holds 727 million barrels, enough to meet demand for about two months. That’s already too little time for comfort — in 2005, Congress wisely ordered an expansion of the reserve to 1 billion barrels — and a significant sale would reduce it further.
There may come a time when turmoil in the Middle East leads to a crisis that would justify tapping the reserve. But that time hasn’t yet arrived.
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