THE BLOG
08/17/2007 10:49 am ET | Updated May 25, 2011

The Oil Patch Cheers On Hurricane Dean

The price of crude oil is down some 8 percent since August 1. What the oil patch and every oil trader knows, one of the quickest ways to turn around this tumble is the drama of a good old fashioned hurricane in the Gulf of Mexico wending its way toward the Texas and Louisiana coasts. And Shazam! Here comes Hurricane Dean!

Hurricane Dean's every little ripple will be reported by the oil industry flacks and their willing mouthpieces in the media. The crescendo of ominous events will be forecast and analyzed, all with a unanimity of purpose leading to higher and higher oil prices. Whether the storm actually hits or not, one thing is sure. The mere specter of the event will have the oil industry and the oil trading community cheering, "Go Big Dean, Go".

A worst case scenario, should Dean gather momentum and do real damage, would be a temporary curtaiment of 2 to 3 million barrels a day, and that probably is a very big stretch. A dislocation of this magnitude for 30 days would be extraordinary. Daily production stoppages would rapidly diminish, so that by the end of 30 days they would be far less than those indicated, if at all.

And a very important point is that this is a temporary loss of production, not a loss of oil. The oil is simply not produced, remaining in the well to be pumped at a later date. And that is key.

Please remember we have some 740 million barrels of oil in our Strategic Petroleum Reserve (SPR), bought and paid for with American tax dollars. Therefore, would it not be great good sense to make the reserve available to the marketplace during these temporary emergencies in order to stabilize the market?

Were the Department of Energy truly interested in the general good, they would immediately announce that the Strategic Petroleum Reserve would be made available should Hurricane Dean cause any shortfall of oil production. After all, is there a significant difference if the oil is stored in a salt dome in Texas as opposed to remaining in a well located in American territorial waters or on the mainland, and available to be pumped later?

Thereby the SPR would be neutralizing any negative impact, psychological or otherwise that the oil interests could muster to scare us into ever higher prices. But you see here's the catch, our Department of Energy has the oil industry's interests at heart, first and foremost. The rest of us come a very distant second. To use the SPR to stabilize market conditions is something the Depatment does only with the greatest reluctance. This, even if it is in the nation's economic interest but happens to be in conflict with the oil industry's ongoing march to ever higher prices.

Can you hear the oil patch cheering in the distance, "Hurricane Dean, we're with you all the way".
Meanwhile, the rest of us should get ourselves ready to shell (pun intended) out more at the pump.