by Henry Oliner

Nancy Pelosi and Newt Gingrich want the president to draw down the strategic reserve of oil to help lower oil prices. When these two agree on anything it may be time to be suspect.

Newt argues it would drive the speculators out and further decrease prices. I am concerned that if it fails to accomplish that goal that prices would rise even further when the reserve is depleted. It would seem to me that the mere existence of the reserve should be enough to hold prices down.

According to Oil Voice we import a little over 20 million barrels a day, down about 475,000 barrels or about 2.4% since last year.

The US Department of Energy Website maintains current data on our reserves. It says we have a strategic reserve of 706 million barrels with an average cost of only $28.42 per barrel. It contends that is equivalent to 58 days of imports, although that only calculates to only 12 million barrels a day. So I would conclude the 58 days is on the high side. We are capable of only drawing down 4.4 million barrels a day.

Using the reserve to punish speculators is a gamble I would not take. With Iran rattling sabers and much of the world’s production in the hands of unstable regimes that hate us, the reserve is just too valuable to squander. If the effort to crush speculators fails, and I think it would, the results could be economically catastrophic with even higher prices and a supply shortage.

On the other hand, if we annouced that we would quickly and aggressively pursue coastal reserves and shale oil reserves as well as require all of our cars to become flex fuel compatible, then the price would drop and stay down.

But it seems that Congress is opposed to every good long term solution, and desperate to take short term very risky solutions. Or they could do the really ridiculous and just sue OPEC to do on their land exactly what they refuse to do on our land- produce more oil.

Could they possibly propose a more ridiculous policy?

print