Hurricane Gustav and Our Strategic Petroleum Reserve

The possible advent of Hurricane Gustav toward the Gulf of Mexico and oil production facilities both offshore and onshore has jumped the price of crude oil by some five dollars a barrel this past week and according to reports on CNBC this morning is already beginning to show up in increases in the price of gasoline.

We, as a nation have over 700 million barrels of oil, bought and paid for, in our Strategic Petroleum Reserve. Barrels that could be made available to industry in case of any serious or otherwise disruption in the production/flow of oil.

Yet not a word from our Department of Energy that they stand ready to supply any needed supplies of crude in case of any Gustav-induced supply interruption. Such an announcement might back off the price of oil by the five dollar jump. But of course that would mean some $100 million less a day lining the pockets of oil interests ($5.00 x 20 million bbls/day)

What is the Strategic Petroleum Reserve for if not a situation such as this? And we would not even be replacing lost barrels, simply deferring production that would become available at a slightly later date.

Don't count on this administration to do anything to contain the price of oil and thereby bring consternation to their cronies in the oil patch. As for the rest of us, well they won't have to answer to us in another four months from their comfortable sinecures in the oil industry, so why should they care.

Comments

[jsarets]

I don't understand Mr. Learsy's ideology. He clearly wants America to sever its reliance on foreign oil, but then he also has a supply-side obsession with cheap oil. I see these ideals as inherently contradictory. Cheap oil is not how we break our addiction to foreign oil in a market economy driven by pricing signals.

If we want to kick the habit, then the downside risks of energy dependence must be priced into the oil we consume, which is precisely the oppose of what Mr. Learsy proposes. He wants to use the SPR to insulate us from those risks. If we continue to pursue a cheap oil policy, then we're asking for some disruption, natural or otherwise, to bring our economy to its knees in the not so distant future.

[SamEllison]

The current price of oil is transferring wealth through a gamed system.
"supply-side obsession with cheap oil." Would you explain?

[jsarets]

True, but we can redistribute this oil consumption pseudo-tax through a windfall profits tax on the oil companies that currently end up holding the spoils of market speculation. When it comes to setting prices, I say let the market do its thing and task our government with promoting economic justice on the back end, converting growth into prosperity like a transmission converts power into torque.

The classic refrain of the supply siders is that if only we could sell stuff to consumers at lower prices, then we could sell more of it. The classic refrain of the demand sider is that if only we could be paid more for our labor, then we'd be able to buy more stuff.

Desperately searching for a way to lower the price of oil is a knee-jerk supply-side response to the broader issue of declining purchasing power across the board. We don't have recessions because the supply side can't keep up with demand. All of our recessions happen when the demand side can't keep up with supply.

The

[jsarets]

True, but we can redistribute this oil consumption pseudo-tax through a windfall profits tax on the oil companies that currently end up holding the spoils of market speculation. When it comes to setting prices, I say let the market do its thing and task our government with promoting economic justice on the back end, converting growth into prosperity like a transmission converts power into torque.

The classic refrain of the supply siders is that if only we could sell stuff to consumers at lower prices, then we could sell more of it. The classic refrain of the demand sider is that if only we could be paid more for our labor, then we'd be able to buy more stuff.

Desperately searching for a way to lower the price of oil is a knee-jerk supply-side response to the broader issue of declining purchasing power across the board. We don't have recessions because the supply side can't keep up with demand. All of our recessions happen when the demand side can't keep up with supply.

The crux of the supply side fallacy is that domestic prosperity is no longer linked to domestic productivity because the labor market has been decoupled from the consumer market via globalization. The true metric of economic progress is purchasing power, not GDP. This isn't to say that free trade is bad, but rather that we need to judge it by its impact on our purchasing power instead of by its impact on our GDP.

[GetAbike]

jsarets, Your concise comment is much appreciated.
For both Mr Learsy and our politicians to constantly pander to our sense of entitlement regarding low oil prices is not only counter productive, but unrealistic. And yes, the cognitive dissonance of Raymonds posts are sometimes maddeningly disconnected from the course of real world events and possibilities.
It is not only true that, as you say, "If we continue to pursue a cheap oil policy, then we're asking for some disruption, natural or otherwise....", but we will be out-bid by China who is sitting on stacks of US dollars and resource hungry. My guess is that even with world recession looming, demand will be the price driver especially as exporters use more of their own resource and actually cut back on supply to keep prices up.
So for Mr Learsy, Bush & Cheney, and other politicians to keep asking for increased production is a waste of time. We can, and have made IMMEDIATE impacts on price by cutting demand; i.e. demand destruction and conservation.
Sometimes Mr Learsy mentions conservation, (did he this time?) but it is usually as part of some obligatory lip service but I don't think his heart is really in it .
Anyway, thanks again for your comments.

[1will]

Perhaps the government can release the oil when it's needed instead of when some are running around like Chicken Little screaming, "The sky is falling."
The oil is intended for severe emergencies not when the price of gasoline goes up 10 cents.

[vippy]

so when Bush1 released the reserves back in 1991 it was an emergency?

[sbgypsy]

HE ASKS:
"What is the Strategic Petroleum Reserve for if not a situation such as this? "

I say anything with "strategic" in it is probably being RESERVED for the military.

Part of the rise in oil prices has got to be the fact that our military is sending ships, planes, hummers, tanks and other assorted hardware all over the world burning up thousands of gallons of fuel.

It's the anti-conservation administration, after all.

[research]

Bush Doubled the amount of oil going into the strategic reserve as soon as he was in office.

It's all about oil.

[Vyvjala]

Mother nature and wall st. are on spin cycle,.........................bend over and crab your ankles.............

[josephjsalas]

High oil prices are the best thing going for Murdoch's DJIA. Just czeck out the list.
It's hardly comprised of the manufacturing we keep thinking it is. Aside from oil, banking
and pills are the other two strengths. And their not doing so well.
Now about that Genepax car...........

[peterg76]

It's a reserve for oil corporation emergencies, not citizen emergencies.

[KillTheMessenger]

What about

"STRATEGIC Petroleum Reserve"

do people not understand?

Higher gas prices are not a national security issue. They might be a wallet security issue, but for that everyone needs to come up with their own "Private Wallet Reserve". They used to call that "having savings", but that expression has gone out of favor, I believe.

[Nitehawk]

Access to the reserve is determined by the conditions written into the 1975 Energy Policy and Conservation Act (EPCA), primarily to counter a severe supply interruption. It has nothing to do with national security. It is an economic resevere to be used so that this country does not grind to a halt.

[KillTheMessenger]

Exactly. It is to be used in case of SUPPLY DISRUPTIONS. Did you see a supply disruption? Did you see gas stations running out of gasoline?

Higher oil prices are in not a disruption of supply. If they curb demand, it's not a disruption of supply, either. But maybe I am reading too much into it and we should open the reserve every time somebody complains about gas prices. What do you think?

[vippy]

No savings because people live from paycheck to paycheck. How anyone can squeeze out savings when the median income is around $ 50,000 is beyond me. Plus, when you make a little more and can save, have you checked, you get nothing for keeping your money in the bank but
they charge you an arm and a leg for borrowing.

[mjt218]

The bigger issue may be damage sustained to oil production facilities and pipelines . . . Major hurricanes cause more than just a short-term production deferral.

[vippy]

Give me a break. Apparently, the US never had a hurricane prior to the Bush Years!
Never before did the gas go up or down when it was 99 cents.

[ProudNeoCon]

Oil moved by $5 in the past week? Oh my god...

Do you even know that oil moved by $5 or more dollars (up or down) in 15 out of last 25 weeks. I.e. such moves are part of regular current volatility in oil prices... talk about making news out of nothing...

[LibRS]

ProudNeoCon. You are mistakenly thinking that "facts" matter to a liberal.

from another proud neocon.

[fishsandwichesr2good]

The poster neglects to mention (or, more likely, probably doesn't know) that the Bush administration released 11 million barrels from the reserve after Hurricane Katrina hit. The DOE is always ready to do this. No need for them to announce anything. I particularly enjoyed the analysis that a DOE "announcement might back off the price of oil by the five dollar jump." I seem to recall that Republicans were mocked that an announcement about opening up more sites for offshore drilling would immediately impact oil prices.

[RoloTomassi]

"I seem to recall that Republicans were mocked that an announcement about opening up more sites for offshore drilling would immediately impact oil prices."

As well they should be, as it is quite clear that economic fears on the market in general drove down oil prices, not any GOP drill-driven delusion.

[fishsandwichesr2good]

I didn't claim it did drive down prices. In fact "it" never happened because Ms. Pelosi made darn sure that such an announcement could not be made when she took it off the table before she lead her colleagues away on their extended summer vacation.

[joebhed]

You know, Mr. Learsy, from reading your post I think that you really have it in for greedy oil speculators who bring nothing to the table but their crafty free-marketeering in their fancy multi-layered, secretive insiders con game that legally pilfers the near-empty pockets of the vast majority of American workers and consumers.

My question is, why?

[RoloTomassi]

Just curious...is there a compelling reason why he shouldn't "have it in" for those you describe?

[Rule Of Law]

Rolo, I think joe was using sarcasm as a way of begging the question in order to make a point. From his past posts I would say he hates speculators with a vengeance...

[RoloTomassi]

Well said sir. The Bush administration has acted counterintuitively on every issue and agency that might uphold stability or improve human outcomes during catastrophic events, or even everyday operations within American industries.

No sane master at the helm of government is the norm for BushCo.