Sunday, March 06, 2011

Misuse Of The Strategic Petroleum Reserve Should Not Be An Option

Unforseen crises tempt political leaders to "do something" to appear responsive to the will of the people.  The current turmoil in the Middle East is one such episode.  Washington thinks the answer to short-term turmoil is to tap the long-term oil stocks in the Strategic Petroleum Reserve.  Let's think about this some more before we act. 

The SPR has a very specific mandate.  It exsists to provide supply in the event of disruptions to physical delivery.  No such disruptions are occurring now in the U.S.  The price of crude is rising worldwide because oil consuming nations everywhere must pay for alternatives to the Libyan production that is now offline.  The price signal sent by curtailed non-U.S. production incentivizes U.S. producers to reactivate wells that do not produce economically at lower prices.  The rig count for U.S. producers has recently risen, along with the share prices of U.S. drillers.

Tapping a reserve intended to provide an emergency supply for national defense just to lower pump prices for American casual motorists is a huge error.  Previous drawdowns during the Persian Gulf War and Hurricane Katrina set unfortunate precedents.  Politicians now consider the SPR to be a political football that can win votes from Americans addicted to spontaneous driving.