I recently read Senator Obama’s new energy plan found here. It’s actually an excellent plan except for one little item that I find questionable — releasing oil from the Strategic Petroleum Reserve to help alleviate the price at at the pump. In light of the “realities on the ground” (i.e. near $4 per gallon gas, oil above $120 per barrel and a slowing economy) Senator Obama has reversed his previous stance against tapping the strategic petroleum reserve (SPR) and is now in favor of releasing “light” crude from the SPR now with the idea that it will lower prices at the pump and replacing it with “heavier” crude that is more suited to the nation’s long term needs.
The effect of the SPR release will be to reduce our consumption of oil out on the open or spot market. This will hopefully reduce the pricing pressures on oil and bring it down. But that’s only temporary. Remember the SPR is of finite size. Currently the SPR holds about 707.2 million barrels of both sweet and sour crude. This translates into roughly 33 days of supply at a consumption rate of 21 million barrels per day (“Strategic Petroleum Reserve“, Wikipedia, August 4, 2008, http://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve) So long as we don’t exceed the supply in the SPR we would gain a respite from higher oil prices.
So here you’re probably asking “Ok, so what’s the point?” The point is this: if, according to Senator Obama’s plan, we release crude from the SPR, then the impact is minimal and short-lived. We would have a short-term respite from the high oil prices that will probably translate into lower gasoline prices. However, like the constant borrowing the government does now in order to pay our yearly budget deficit, we would be weaking our longer term strategic position as we will have drawn down on a strategic reserve that is meant for a rainy day. It’s like dipping into your 401k to pay bills now without realizing that the money you borrow today must be paid back tomorrow. We will eventually have to pay back the oil and put it back into the SPR (which will place pressure on the overall oil supply in the open market) — that’s a fact. And the price at which the government would buy the oil to put back into the SPR would probably be higher and the action of buying the oil to replenish the SPR would put some additional pressure on overall oil prices in the market. So, in the long term it really doesn’t seem to be a good idea — it’s kind of like the character Wimpy in the old Popeye cartoons who used to say things like “I’d gladly pay you Tuesday for a hamburger today.”
We want to lower prices at the pump. That’s fine, but we shouldn’t do it with gimmicks like releasing crude from the SPR which we will have to replenish tomorrow at probably higher prices. We need to focus on efforts like conservation, public transportation, getting more hybrid and electric vehicles on the road as well as other efforts which will have long lasting, long term results. Drawing from the SPR is a very, very short term relief which, on the whole, I don’t think has a lot of merit and is simply thrown into his new energy plan as a way to curry favor with the electorate. Remember the key thing to consider is that the reserve only contains 707 million barrels of oil and would be exhausted at our current consumption rate of 21 million barrels of oil per day within 33 days. This is insufficient time for a longer term plan to really take effect and have an impact. The only silver lining to this cloud is that the respite will not be enough to lull American consumers into thinking that the crisis is over.
This is clearly a political move to curry favor with voters — and I accept it as that but I don’t think it is worthwhile. Senator Obama is, unfortunately, willing to risk a strategic resource that is meant to be there only for the most dire of emergencies for political need. I understand his motivation in his desire to get consumers relief now, but to do it with a gimmick…that, to me, seems disingenuous. What voters need to realize is that once the SPR “tap” is shut off then oil (and gas) prices will go back to where they were…but we will not be the better for it.
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