Unreserved

It's hard for many people to get excited about abandoned salt mines in southern Louisiana--unless, of course, those mines happen to hold some 600 million barrels of crude oil. Called the Strategic Petroleum Reserve (SPR) and established after the 1973 OPEC boycott, the four mines and the black gold they contain have quickly moved to the center of the debate over rising gas prices. This week 25 Democrats, led by Charles Schumer, introduced a Senate resolution calling for Bush to release 30 million barrels--1 million a day for a month--from the SPR. And John Kerry--along with several oil-reliant industry groups--has called on the administration to stop filling the SPR (we put about 130,000 barrels in it a day) and divert the oil to refineries.

The proposals are classic pocketbook politics--anyone paying $2 or more at the pump is likely to agree that we should try to lower prices by putting more oil on the market. But good politics rarely makes good policy, and this is a perfect case in point. Not only would tapping the SPR do little to affect prices, it would leave us more vulnerable to a real oil shock down the road--exactly what the SPR is designed to protect us against.

It's true, of course, that releasing a million barrels a day from the SPR would reduce prices in the short term--all things being equal, according to the Energy Information Administration, increasing supply by 1 million barrels translates into a $3 to $5 reduction in oil prices and a 7 to 12 cent reduction in gas prices. But in reality, the market adjusts quickly, and absent political pressure, producers are likely to reduce their output accordingly.

Indeed, analysts on both sides agree that the main impact of tapping the SPR is psychological, sending a message to commodity traders and crude producers that the administration is concerned about oil prices. But in the past, psychology has had limited success--when the Clinton administration released 30 million barrels from the SPR between September and December 2000, oil prices dropped dramatically, from $37 to $32, only to rebound just as dramatically to $36 soon after (though the price later dropped again to $32, it had mostly to do with an unseasonably warm winter). Part of the problem with Clinton's timing was that he was just about to leave office, lessening the psychological impact. The same scenario applies four years later--even if Bush were to tap the SPR, uncertainties about the November election would greatly lessen his influence.

And it's important to keep in mind that while oil and gasoline prices are high and rising, many economists say we are seeing less of a spike than a long-term trend. "This is the economic principle of supply and demand driving prices," Mark Baxter, an energy economist at Southern Methodist University told The Washington Post. "I think this price is sustainable." Growing demand from India and China, rebounding economies in the United States and Japan, and instability in Iraq--trends that are unlikely to change soon--have conspired to push prices higher. So even if releasing oil from the SPR brought some short-term relief, we can't do it for very long, especially at the million-barrels-per-day rate that Schumer and others propose. After a few months we'd have to stop, and prices would return to their previous level.

Finally, there's the fact that lower crude prices don't necessarily translate into lower gas prices, or at least to the same degree. Even though the price of crude is the largest single component in the price of gas, it's only 43 percent, with the rest coming from the refining process and distribution costs. In fact, one of the long-term problems helping to inflate gas prices is the lack of domestic refining capacity--it's been decades since a new refinery was built, and refineries are currently running at 96 percent capacity, leaving little room for an increase in the flow of gas to the pump. "All in all," wrote the Petroleum Industry Research Foundation last year, "the impact of the SPR fill by itself on oil prices is measured in nickels and dimes per barrel, not dollars, and no more than about 1 cent a gallon to consumers." A reduction, to be sure, but not exactly the pocketbook panacea that voters might be hoping for.

And while tapping the SPR makes good political hay, any significant reduction in the reserves would leave us vulnerable to a real supply shock--say, if jihadists took over Saudi Arabia and shut down its exports (Kerry's plan at least has the virtue of keeping the SPR at status quo levels). And we're already running well below the historical norm for the reserves--we've got about 55 days' worth at current daily consumption levels, whereas we had almost 90 in the early 1990s.

To their credit, the Bush administration has so far refused to tap the SPR, or even stop filling it. "The reserve is not there just simply to change prices," said Energy Secretary Spencer Abraham. Of course, the White House has no plan of its own, except to blame Democrats for blocking Bush's energy plan last year. Abraham and others are right to point out that this is a long-term problem that can't be solved with short-term solutions. But they have yet to come up with their own response, which may explain why the Democrats are getting so much traction off of such a bad idea. Cutting into those vital stores to reduce gas prices by a few pennies just isn't worth it.

>>>>>>>>>>>And we're already running well below the historical norm for the reserves--we've got about 55 days' worth at current daily consumption levels, whereas we had almost 90 in the early 1990s.

This passage struck me for several reasons.

1) Bush knows he's getting kneed in the groin for not releasing the oil and being everyone's Sugar Daddy like Slick Willie was. Kudos to our president for staying the course and choosing a hard right over an easy quick-fix wrong.

2) Why only 90? If Iranian Nut Jobs invaded and subverted Suadi Arabia, does anyone really believe we will hook ourselves up again in just 90 days?

"Even though the price of crude is the largest single component in the price of gas, it's only 43 percent, with the rest coming from ~~the refining process and distribution costs~~ outlandish environmental regulations."

that's only $5 million a day the country is continuing to spend to fill the reserve that Clinton / Gore so foolishly depleted for some short term political gain ????

Of course, the White House has no plan of its own, except to blame Democrats for blocking Bush's energy plan last year

What a stupid, malicious, contradictory statement. Um, as indicated, the White House did and does have a plan. If the author had any intention of conveying truth, he'd say "the White House has a plan that has proven unacceptable to Democrats". Is that so hard?

Lets see, we could release oil from the 648 million barrel supply in the SPR.

Or we could release oil from the 16,000 million barrel supply in ANWR.

Gee, I wonder which would be more effective?

http://www.anwr.org

Tapping the reserves just because SUV owners start to whine is a bad idea. We should only tap the reserves only in case of a genuine emergency, when our military needs the fuel. Everyone who signs the papers on a Suburban or H2 knows the score, but they buy them anyway.

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