Tap the Strategic Petroleum Reserve

Now that the price of oil has hit $135 a barrel, President Bush’s decision to stop adding to the SPR isn’t enough. The U.S. should deploy it to reduce prices. Pro or con?

Pro: Oil Needed Now More Than Ever

According to the Bush Administration, the Strategic Petroleum Reserve is to be used in case of national emergency or supply disruption, not to interfere with the free workings of the market.

But that stipulation presupposes the market for oil is free and working, which it is not, given the collusive activities of the OPEC cartel. It is both a rigged and speculator-driven market. Stubbornly unwilling to recognize this fact, the Administration has misused the SPR either willfully or through gross mismanagement in a policy that has supported and validated ever-rising prices.

In 2007’s State of the Union address, President Bush called for the doubling of the SPR, even as oil prices tumbled toward $50 a barrel. Presto, almost immediately after his speech, the price stabilized and began its rocket-like ascent to today’s $135 a barrel.

Last fall, when prices were “barreling” past $90, Energy Secretary Samuel W. Bodman boldly announced—just days before the meeting of OPEC heads of state—that the U.S. would release no oil from the SPR to curb prices and that an additional 12 million barrels would be added to the stockpile in January—as if it were summertime in Jamaica.

As late as it would have been, nonetheless at that moment we should have received instead an announcement that we would consider this an economic emergency and make releases of heating and crude oil to the U.S. marketplace through the winter. OPEC took into consideration Bodman’s remarks and did nothing at its scheduled meeting, and the price of oil marched on to touch $100 a barrel on Jan. 2.

A restive Congress has recently forced the issue, calling on this Administration to desist from making further additions to the SPR, and presented the President with a bill that, given its overwhelming approval, was in essence veto-proof. The President, recognizing the inevitable and aware of the growing anger in the nation at large, reluctantly signed the bill.

Now, for once, Congress has clearly taken over the mantle, and we will soon find out where this will take us. One last question: What would a sizable release from the SPR do to the speculative longs on the trading exchanges, and breaking the presumption of a one-way direction that the market has begun to take for granted?

Con: Deployment Will Only Add to the Problem

To formulate today’s actions in relation to the Strategic Petroleum Reserve, we should look back on a lesson learned from the 2005 hurricane season.

A combination of government action and inaction mitigated the effect of hurricanes on the price of oil and its by-products. The International Energy Agency’s release of the 60 million barrels from its petroleum reserve and that of its members contributed to increased supplies. These actions increased U.S. gasoline imports and put downward pressure on crude and by-product prices. At the same time, federal and state governments rejected calls for price controls and direct intervention in pricing. This “inaction” allowed market forces to work.

In 2005, releasing some of the reserve made sense. In 2008, it doesn’t. The U.S. Strategic Petroleum Reserve was established for use in case of emergency and supply disruptions, not for manipulating markets and influencing prices.

Because the U.S. has no real shortages today, the release would weaken the country’s ability to respond to legitimate crises. Deployment would jeopardize national security in case of a supply disruption.

The decrease in oil prices that will result from the U.S. government’s recent halting of SPR buildup will be larger than the decrease in oil prices resulting from deploying that same amount would be.

A release would also violate U.S. principles of free markets and free trade—and contradict the U.S. policy of promoting free markets in China and Russia. The oil industry does not want to see a repeat of the 1970s disaster, when the government intervened in the oil markets.

Furthermore, deployment will not solve problems in the products markets caused by limited refinery capacity. U.S. refineries are operating near full capacity and cannot function at 100% without creating a safety hazard. Crude oil from the SPR will back up other oils and fail to increase the availability of heating oil for the coming winter.

If refiners expect the government to keep interfering until prices decrease, they will refrain from purchasing crude now, waiting until prices decline. This will exacerbate the situation by reducing supplies and increasing prices in the gasoline and heating oil markets. In this case, the release of the SPR will lead to the opposite of the intended results.

Tapping the SPR could also compel OPEC to retaliate and cut production. Such cuts could eliminate any effect the SPR may have on oil prices.

Editor’s Note: The authors have updated their essays as of May 22, 2008. (They first appeared in January, when oil had hit $100 a barrel.)

Opinions and conclusions expressed in the BusinessWeek.com Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

Ed

Good points both pro and con. I do agree, though, that filling the reserve should have been done while oil was cheap, rather than $90 a barrel.

I still can't fathom how oil was priced at $5 a barrel 10 years ago and $90 now. Are there 18 times as many cars on the road?

logic

Quite honestly, the name "Strategic" in SPR ought to answer this question. This is an emergency oil source, in case something happened such as an Al-Qaeda led coup in Saudi Arabia or war with Iran and oil tankers being sunk left and right by Iran's hypersonic Sunburn missiles. In other words, the SPR is intended to buffer against a genuine emergency, not prices that we don't like.

Tom

The pro argument is about actions by the Administration that may have something to do with the cost of oil. I did not read any argument that constitutes an emergency or supply interruption. Today, oil still flows, and tankers still sail. Any release now can only be justified because we don't like the price at the pump.

As for the con, it accurately focuses on refinery capacity as a factor few talk about. America needs to decide on its priorities. Blue skies, green grass, and no new refineries--or cheap gas, some pollution, and new refineries. You could release every drop from the SPR, but if refineries can't process any faster, prices will go nowhere. As for the comment by Ed, don't forget China as the new oil guzzler; its growth and thirst in the last 10 years have skyrocketed.

Liz Bossley

Governments aren't good at markets. The prospect of OPEC's intervening when prices get too low and the U.S. or the IEA intervening when they get too high is a recipe for increased volatility, not stability within an acceptable range. Even if they get the direction of their interventions right, the timing will be wrong. The only "right" price for oil is the one determined by the sum of the activities of buyers and sellers in the market.

random

The high price of oil has to do with oil companies taking down their refineries for months at a time and operating the few they have at 80% to 90% capacity. Combined with the skyrocketing demands of China and India, political rumblings in major OPEC nations of Venezuela, Iran, and Nigeria, war in Iraq, the specter of terrorism, nationalization of oil supplies in South America, and pure, unabashed market speculation of commodities traders, oil is becoming harder and harder to get and thus more expensive per barrel. Releasing the strategic reserve doesn't resolve any of these issues or even lessen them.

Boosting the SPR with $90 a barrel oil was probably motivated by fears of terrorism and the Administration's intent to continue its confrontation with Iran, which could disrupt the flow of oil even more than it's disrupted now. As world tensions keep growing, it would be unwise to use the SPR to only temporarily relieve prices at the pump.

Personally, I see oil north of $100 per barrel as the perfect opportunity to wean ourselves off oil. We've been using it since ancient times and are clearly outgrowing its potential with our demands. Time for something new and something better. And we should not forget that many fabulously wealthy sheiks and emirs plow a good portion of their oil profits into terrorist outfits. Why don't we invest a few hundred billion into making all electric technology live up to its promise? It's good for military strategy, it's good for national security, it's good for our wallets and thus our economy, it's better for the environment, and it helps de-fang terrorist organizations.

Khaldoun

I agree with Dr. Alhajji:
1) It's a strategic reserve and not a tool for the government to interfere with the free market.
2) The U.S. has had refining capacity issues for a while now. We should all recall paying more for gas at the pump because refineries were in short supply.
3) It's economics if the SPR is used. There would be an OPEC reaction as well as a move to reduce purchase orders by refiners, as Dr. Alhajji said.
4) Isn't it time we came to the conclusion that oil prices were artificially too low and the new realities of the world economy and demand of natural resources make it clear that we should have responded many decades ago? After all, there is a cost to depleting a nonrenewable natural resource. It's a fact, and sticking our heads in the sand to ignore it apparently did not work.
5) Higher oil prices are not all bad. There will be a tremendous move on the part of most technology industries to produce viable energy-efficient products, from lights to cars and airplanes.
6) Let's not forget Mother Nature. Perhaps this is the only way we actually end up respecting the environment rather than pretending that we do.

Jim Williams

The September, 2000, SPR release is my favorite example. Under this "time exchange," oil companies received oil that had to be paid back plus an additional percentage. The interesting point is that it had minimal impact on prices. Oil imports were lower by a volume close to that of the release, and companies in the exchange faced a profit without risk in the transaction. The futures market was in strong backwardation, and it was only necessary to purchase a futures contract for oil coinciding with the time to return the oil. That guaranteed a profit even with the additional oil required under terms of repayment.

By the November, 2000, election, oil prices were higher than at the time of the announcement of the program.

Antonio P.B. Sarmento

It should be taken into consideration that the U.S. SPR is not limited to the stocks held in the U.S. territory but that the production available in Mexico and Venezuela are also accountable therefor. Despite minor political adversities and animosity of isolated leaderships, the U.S. may always count on the solidarity of the eastern Americas market. And why not? The U.S. will stay for a long time ahead the only deterrent in the North and South American continents against terrorism, and it is a known fact, irrespective of some local politicians' willingness to accept it or not.

James Grieme

The use of the SPR would be nothing more than a knee-jerk reaction to a problem that has its very foundation in greed. We are facing $100-a-barrel oil because of speculation and a consumer mentality that believes it is a God-given right to drive vehicles that get only 12 miles to the gallon. The release of any of the SPR wouldn't even ripple the proverbial pond.

Dean

I see that both sides have great points. However, I think there are a lot of factors that are not being discussed. We are heading into a recession. The world economy depends on the U.S. as the major purchaser of goods. We are about to see a world recession if changes aren't made.

What is causing the current recession? People can speculate all they want, but the bottom line is that oil prices are the cause. Every item bought or sold in the U.S. (including services) has been affected. I spend about $2,000 a year more on gas for my vehicles than a couple of years ago. That money is not used to support U.S. goods. Most of it goes overseas.

Those who see the price of gas rising as a great opportunity for the environmental changes needed in this country and around the world, I applaud the idea but not the method. We should be moving fast to that destination for economic and environmental reasons.

In addition, national security will be at risk as well. The terrorists have found a great way to weaken the U.S., and it has nothing to do with terrorism. Everyone in this country, with the exception of the savvy rich, are going to suffer greatly if oil prices continue to squeeze every aspect of our economy. They aren't bombing our buildings anymore; they are hacking away at our wallets.

Our problems reach far beyond all of the discussions. The refinery capacity issues will never be solved. Oil companies are enjoying record profits (because of shortages?) and are not going to reinvest in refineries. Why increase capacity when we are looking to switch to alternative fuels? It would be a wasted investment. Right now they are making more money than ever because of limited refinery capacity.

Basically, all of the fear-mongering and speculation are contributing to an excuse by the oil industry (both here and abroad) to increase price in order to increase profit. The U.S. is afraid to control prices because of the fair market principle; however, this market is not fair. The American people pay whatever the pump says. Until alternative fuels are available, we have little choice. It's hard to get to work on time with a 30-minute drive if you have to walk.

In summation, we need a miracle. Alternative fuel vehicles can't come soon enough. Government control of gas prices can't come soon enough. Our economy should not be held hostage by the price of oil. Recession wasn't even on the map until oil prices started climbing. The SPR may or may not have any effect. Maybe we should ask the nice oil companies to share some of their record profits with the failing economy that they helped create. Now there's a plan.

Perk

Wake up. Do some research. You will find that oil is up because we are nearing peak. The world's reservoirs have produced and are producing a maximum tilt. As a petroleum analyst who's studied field performance and has also drilled and participated in more than 200 wells in the U.S. for 28 years, I can assure you that oil and natural gas fields die--they don't last forever.

Wake up, folks. Putting oil in the SPR at $90/bbl is better than $150.

Sam

The government should have stayed out of the SPR business. We should privatize the SPR. In this case, we would not need to debate the issue. In fact, the topic should be: Should we privatize the SPR?

Nawwar

I see Dr. Alhajji has highlighted in depth. The price of oil would likely return to its previous level. Tapping the SPR is not a solution, and proponents of doing so should focus instead on these far more promising sources of domestic energy. However, the SPR is not up to the task of making oil cheaper--at least not for very long. There are hungry markets in China and India that have a significant role in determining the prices and stabilizing the market trends, too.

Ben

What we should remember is that we are heading straight into a big oil crash. Definitely, we have nothing to replace cheap oil. Get ready for the crash. It will come; it is only a question of time, because we continue to waste this beautiful (and limited) resource. Oil does not grow on trees. One hundred dollars a barrel for oil is still too cheap to get our industry and consumers to react. Let's stop wasting.

ACE

What Ben said.

andy

Drill for more oil--Alaska and offshore. Get greater oil supply, prices go down. Who is running the show here in America? All we need is a little common sense.

mike

Rebate checks will not fix the economy. As in 2003, consumers will put it into the bank and not spend it.

What will work is the elimination or sizeable reduction of federal taxes and fees on gasoline. This is truly spendable income directly from the consumer's pocket. This savings, equal to $150 billion to $300 billion will go directly into the economy. This elimination/reduction could be temporary, permanent, or scaled to the needs of the economy.

Tom Reese

I wish that the two experts discussed issues related the SPR release mechanism, the swaps, the quality of crude in the SPR, and the location of the SPR. The fact that the SPR is located in only two states while energy shortages are in the Northeast and the West indicates that the SPR des not enhance energy security of the nation as a whole.

Richard Moore

We have already enjoyed lower than real costs for oil and gas over the years. This is compared to other countries. The SPR should be kept in reserve for military use only in time of emergency. With events around the world like 9-11, how can we reach any other conclusion?

davcbr

I seem to remember years ago when the idea of a $0.50 a gallon tax that would be used to finance a sane energy policy was screamed out of existence.

So much whining.

Hugo van Randwyck

If the price of petrol rises from $3 to $6 - as in Europe- then America would start making products that can be more easily exported. At the moment the US government borrows money from China for handing out tax refund cheques, and also borrows to pay for rising oil - up from $25 tp $90 a barrel. Tax/refund suggestion:
1) Incrementally add If the price of petrol rises from $3 to $6--as in Europe--America will start making products that can be more easily exported. At the moment the U.S. government borrows money from China for handing out tax refund checks, and also borrows to pay for rising oil, up from $25 to $90 a barrel. Tax/refund suggestion:
1) Incrementally add a tax to fossil fuels every month (e.g., $0.10 a gallon of petrol every month).
2) Put the tax into a separate fund every month (using approximately 10 billion gallons a month, after 12 months, $1.20 extra tax equals $12 billion).
3) Divide the amount, every month, by the number of people over 18 (using 240 million equals $50 a month).
4) Send everybody over 18 a monthly refund check ($50 per person per month, or $600 annualized).
This uses: price signal, free enterprise, freedom of choice.

American manufacturers already have operations in Europe with the new technology. If the price of oil falls because of lower U.S. demand, say from $3 to $1.80, then add another $1.20, giving people another $50 a month refund. This will give businesses an incentive to invest and create jobs in leading edge technology and consumers to switch to more fuel-efficient technologies.a tax to fossil fuels, every month (e.g. $0.10 a gallon of petrol every month).
2) Collect the tax into a separate fund every month( using approx 10 billion gallons a month, after 12 months, $1.20 extra tax = $12 billion).
3) Divide the amount, every month, by the number of people over 18 (using 240 million = $50 a month).
4) Send everybody over 18 a monthly refund cheque( $50 per person per month, or annualised $600).
This uses : price signal, free eneterprise, freedom of choice). Americans manufacturers already have operations in Europe with the new technology. If the price of oil falls, because of less US demand, say from $3 to $1.80, then add another $1.20, giving people another $50 a month refund. This will give businesses an incentive to invest and create jobs in leading edge technology, and consumers switch to more fuel efficient technologies.

sue

Wait till the election comes closer. Oil will not be $100 a barrel. How will that happen? Hmm.

Rick

I try to drive as little as possible, and walk to places within a reasonable distance. The last thing I want is my military at the pump next to me months down the road, because the reserve was tapped by citizens. I'm a veteran, and I completely support the oil reserve for our military.

Hugo van Randwyck

I Googled "U.S. Europe miles per gallon," and found that in Europe, the average car on the highway is 47 mpg vs. 27 mpg in America. For city traffic, in Europe it is 36 mpg and 21 mpg in America. Petrol price in the U.S. are $3 a gallon, in Europe $6. The main reason for expensive petrol in Europe is tax. If America were to tax petrol gradually (every $1.20 tax is about $600 a person) and then refund it every month, in two to three years, with petrol at $6, there would likely be lower oil imports, less borrowing from China for oil imports, and more new technology that Americans can export. If oil fell to about $1.80 a gallon (without tax), with an extra $3.60 tax per gallon after three years, people could get a refund of about $1,800 a year--useful for paying off a car loan for a fuel efficient car.

Robert Bryce

Alhajji has it exactly right. The SPR is designed to be used only for emergencies. If the U.S. starts to use it as a way to hedge against fluctuations in the global price of crude, it will be no different from how China is using its SPR. And we know from long experience that the more the federal government tries to manage energy supplies and prices, the worse it is for consumers. The best way forward with regard to energy policy can be summed up in five words: Let the free market work.

Ken

I liked the idea of Hugo van Randwyck of tax and rebate on gasoline. However, consumers are worse off because the rebate does not cover all consumer losses from the tax. A tax will change the price of gasoline. The increase in price will result in two effects: the income effect and the substitution effect. The tax compensates only for the income effect, while the cost to the consumer is both. However, what will consumers do with the rebate? How are they going to spend it? Extra trips? Vacations?

Also, the idea might work only if income stays the same or decreases. If income increases, the idea of tax and rebate does not hold.

Hugo van Randwyck

Hi Ken, good question--who knows how consumers will react? The petrol tax will also apply to businesses that will have an incentive to invest in fuel-efficient vehicles and journey planning. They will not get a rebate; only consumers will, so the profit motive helps here, including company cars. So what will a person do with a rebate? People have a choice, invest in a more fuel efficient car, or if your neighbor does before you do, then you are indirectly giving your money to your neighbor. The first people to buy a more fuel-efficient car will get more in refund than they pay in tax. Also American manufacturers will finally have a level playing field, with designs that will sell in a $6 a gallon market, e.g., in Europe and Japan. Also with new business investment, productivity will rise, which helps pay for increases in incomes. Lower U.S. oil imports could help reduce the trade deficit and interest rates.

There are already petrol taxes and a system for sending tax rebate checks--the system is already in place. All that's needed is the price mechanism.

Sun_Tzu_Sun

Second wake-up call: We are at peak oil now. For those who don't know anything about it, do some Google searches.

There is no more "free market" under these conditions. Get used to it quickly (and change your habits fast).

RN

Former President Clinton used the policy regarding Strategic Oil Reserve very effectively against oil prices. On the other hand, the Bush Administration has used the same tool to prop up oil prices against the economy. The oil price bubble will come, and oil speculators need a rude awakening like all other greedy market speculators.

Pithy

I guess if all Americans were 5 feet tall and weighed 90 pounds, we could all drive Yugos, couldn't we? And our kids would fit nicely in the back seat. Drat those fat, tall Americans.

emmy

What Sun Tzu Sun said (comment on January 27, 2008 08:41 AM)! If you didn't understand it, do this right now: Google "peak oil," go to lifeaftertheoilcrash, and prepare to be depressed and scared.

Ben

I agree with "Emmy." Google "peak oil" and look on youtube as well. But I think we should not be scared; we should be active. This means cutting our use of energy and petrol, and talking about peak oil, the most important subject for our kids.

alan

The price of oil is not being driven simply by supply and demand. Its moves up are usually for trivial reasons. People in the oil business are intentionally bidding the oil futures up. If they can drive the price up even temporarily, they win from both the speculation and the higher price for their products. There is a lot of oil money that can easily be put to work bidding up the price of future contracts in oil. If the price drops, they cover the contract with their own oil.

Robert Atkins

We should drill wells off the east coast of Florida and get more oil from Canada and let the Arabs drink their oil. Why not pay small farmers $100 for a barrel of grain that we ship to these oil-producing countries? Our representatives in Washington are getting their pockets lined by these oil companies. It is election year, and nobody is addressing this issue.

J.Burlingame

The Fed manipulates the federal interest rate to intentionally "interfere" with the free market of borrowing, lending and buying. So to say that releasing the SPR is anti-American or anti-capitalistic is false semantics.

That said, this wouldn't help any more than the gas tax would to save us money. It would be only temporary, and when will oil drop to $50 a barrel again, anyways? We don't know and we should have that SPR in case the price hits $300 a barrel in three years or oil isn't available at all.

You've heard of the New Deal? We need the "Green Deal." Massive amounts of money pumped should be pumped into alternative transportation and alternative fuels. How much have we spent in Iraq (largely to source and protect cheap oil)? If just half of that amount was spent in the Green Deal, we'd have lower transportation costs with less stress placed on the environment.

BC

Still cheap at $4 a gallon. See European prices; unless you want to move to China, India, or the Middle East where you can find even cheaper (subsidized) fuel.

I don't see any emergency to drain the SPR. No double nickel speed has been declared, no gas lines, and I still see plenty of one-driver SUVs. Try pulling out on 95--it's still a rat race on that road.

george

Didn't work in the past, won't work now. Oil reserves are a pittance compared to what is used. Could not significantly change the price of gasoline. Cannot and should not take a chance on being short of fuel in an emergency of any kind. Especially in a military situation. Ethanol is a short term answer. Corn is not needed to make ethanol. It can be made from other products.

A Economy

I am all for another oil embargo. Then maybe America will wake up. We did not learn our lesson from the 1970s, and we are now more dependent on foreign oil.

It is time that America got off oil and into a green way of life. There need to be more tax credits for alternative types of energy: solar, wind, geothermal. All it takes is a sneeze in the Arab countries, and the price goes up.

We need to bring back the 50 drive 55 law for every state, and reduce our need for oil.

Wake up, America.

Ice_Berg

Since petroleum is a limited resource, it seems we should find other ways to sustain our energy needs. Most people don't think outside their short lives. So the consequences of an abrupt end to oil don't concern them so much. Good thing someone is looking out for future generations and doesn't mind causing the population a few inconveniences.

Ted Pert

Let market forces decide what the oil price should be, and get the manipulators from Wall Street. There is a bubble building, and it's about to burst. Watch out.

BIGWEEDS

My suggestion is to draw down the reserve and make some money, and when prices come down, buy back what was sold, and the USA will have made some easy bucks. I believe that if the price of oil stays high or goes higher that quite a few "new" sources of energy will become reality. I hope that the Arabs like to drink oil, because I also believe that the "day of the oil" is quickly coming to an end. Go USA.

gulfbridge

The reason the world knows much of the rise in the price of crude oil is because of speculators. If George Bush really wanted to bring down the price of oil, he would release a sizable quantity of oil from the U.S. strategic reserve. The idea would be to burn the speculators so badly they are driven out of the market. Even threatening to do it would have some impact. Better than pleading with OPEC to increase production when they don’t have a lot of spare production capacity anyhow. Burn the speculators badly once, and they will get out and stay out.

Will Bush do it? No way. Why? Because many of the speculators are his best buddies. Both in the oil industry and outside it. Is Bush going to get in the way of their chance to gain windfall profits by screwing the U.S. consumer? He'll even give them all precautionary pardons before he leaves office just in case the next Administration decides to prosecute them.

james Anderson

Can people divorce themselves from the "hate Bush" mentality long enough to see the facts? We need additional supplies or threats thereof to wean the speculators out of the futures markets and to allow for the possibility of new supplies in the near future--and the friggin' socialist democrat whiners to stop saying (Maxine Waters) "We need to run your companies." Congress (both sides of the aisle) has done nothing to moderate this problem. Ergo, much like the bailout of Wall Street with the subprime, we get to pay the Saudis back for Wall Street ripping them off on the securitized bull crap they sold them.

BIGWEEDS

Has anybody figured out how the dinosaurs were able to dig tunnels 7,000 to 10,000 feet deep in the middle of the oceans and then stay there so that they would die down under? I bet that the earth is producing oil in a continous manner, and we will never run out of the stuff. The folks bringing it up to the surface need for us to believe that we will run out at some "point" in the future, which they fail to put a date on.

Sharanjit Singh Thind

By its very own name, SPR defines its use. It should only be used in emergency situations, where all other means and ways fail. To use SPR to stabilize prices of oil will be exposing and inviting us to forces who want to harm us where it hurts.

We are a flexible nation, and we can adjust according to market forces at play. We have all seen more compact cars (Prius, Smart, hybrids) on the roads these days. Detroit's Big Three are crying that their SUVs are not moving like in the past. What that tells us is consumers are adjusting but taking the natural time it takes for one to adjust.

But our government should also stop playing into the hands of the OPEC cartel by not releasing statements at the opportune time, when it suits OPEC, and symbolically agreeing to release a very small amount of oil from the SPR, which will clearly tell the OPEC cartel that if it goes too far, we are ready.

God bless us. God bless America.

Manuel from VA

Most Americans don't realize they will never see the days of $3 gas again. Some think the President or Presidential candidates can make any major adjustments to our energy issues by themselves. We need to plan for gas to cost $4 to $5 in the foreseeable future. Small steps will not make a big impact to counter the demands for oil and gas in India, China, and other Asian countries today or over the next 10 years. This is supply and demand at its best, or worst.

Not helpful are the bipartisan witch hunts, finger pointing, and political pandering over the issue.

What we need is for Congress and the executive branch to work together to find real solutions that together will make the difference: alternate sources of fuel; conservation incentives; exploring/drilling in an environmentally friendly manner; improved mass transit (start with enhancing our rail roads); telecommuting. These taken together may keep gas prices below $5, but most important, they will help us take steps toward less reliance on others for our energy needs.

The mass media could help by supporting long-term solutions instead of taking partisan sides of the issue. On energy, they need to be pro solutions and neutral to partisan ranting that solves nothing. This is our country.

random

"Has anybody figured out how the dinosaurs were able to dig tunnels 7,000 to 10,000 feet deep in the middle of the oceans and then stay there so that they would die down under?"

Oil comes from ancient algae and plankton, not dinosaurs. These creatures used to live in shallow seas and at the tops of oceans but as they died, they floated down where, through a very slow process, they reacted with minerals and metals to become oil. After hundreds of millions of years of continental shift, they concentrated in various hotspots all over the world.

Likewise, much of today's coal formed about 310 million years ago during the Carboniferous Period. So yes, oil and coal are renewable and can be artificially manufactured if you're willing to wait millions of years and money is no object, but we might as well just switch to solar and nuclear, because anything else would be far too cost and time-prohibitive.

Of course the quoted, comment might have been sarcasm. (I hope.)

"We need additional supplies or threats thereof to wean the speculators out of the futures markets and to allow for the possibility of new supplies in the near future"

From a 60-day reserve meant for national catastrophes? I'm not exactly sure how such a tiny reserve for such a large, car obsessed nation of trucks and SUVs would comfort speculators betting triple digits per barrel on Armageddon.

"and the friggin' socialist democrat whiners to stop saying (Maxine Waters) 'We need to run your companies.'"

Nobody intends to run oil companies other than oil executives. But many would like to prevent oil companies from double-dipping in profits by first mining and delivering the petroleum and then by using friendly traders and allied speculators to bid up the price per barrel higher and higher. Competition is good for the customer. Collusion isn't. The U.S. has a mixed economy (capitalism with regulation) to prevent collusion and the monopolies and extortion that were so rampant until the Great Depression.

Pete

Americans need to get used to $4 and $5 gas.

James Molyneux

How is NASA getting on at Mars? If they strike oil, will it be American? Whoo-hoo.

Bill

(1) The SPR is an emergency reserve. Not a comfortable-price reserve. Gas prices will moderate gas consumption, which will set the proper price.
(2) We are obligated by international treaty to keep a 90-day supply of oil and to supply Israel in an emergency. We have little leeway here.
(3) The SPR is barely enough to help us through an emergency disruption without shutting down, and that is with extreme conservation measures. It is far too small to hurt speculators long term. They can read inventories as well as anyone and would break the SPR just as George Soros broke the Bank of England in 1992. It would be a simple matter to keep calling contracts until the reserves went empty.

William

The U.S. should first cut CEO severance packages to $135.

The U.S. should do away with gas guzzler SUVs.

The U.S. should establish respectable relations with oil-exporting countries.

The U.S. should limit car-per-family ownership to two.

The U.S. should teach its people to be less wasteful.

Ken S

Would everyone go back and please read the posts by Random (January 22, 2008 08:22 AM) and Dean (January 22, 2008 02:04 PM)? While I may not agree with everything they wrote, the real issue with petroleum products relates directly to refining capacity. Please visit http://tonto.eia.doe.gov/dnav/pet/pet_pnp_unc_dcu_nus_m.htm. This is the Web site for official energy statistics from the U.S. Government. You'll find tons of data; don't get overwhelmed.

Here are a few key statistics to consider: U. S. Operable Crude Oil Distillation Capacity (Thousand Barrels per Day) in 1/1985 was 15,659. By 3/2008 the capacity was 17,594 (thousands of barrels/day). In 23 years and 2 months, capacity increased by 12.4%. In 1/1985 U.S. Gross Inputs to Refineries (Thousand Barrels Per Day) were 11,583, and in 3/2005 it was 14,637 meaning, an increase of 26.4%. The result is in 3/2008 capacity utilization was 89.5%. To repeat: capacity increased 12.4% and inputs increased 26.4%. Refinery utilization went from went from 74% to 89.5%. Other utilization stats from 1/1985 to 3/2008: Mean = 89.5, Median = 90.1, Min = 73.7, Max = 99.9, & Standard Deviation = 5.2. Bottom line: the supply of oil is not the issue.

The ability to refine oil is the bottleneck. Keep in mind U.S. refineries are getting older; many have exceeded their expected useful lives. The oil companies have realized they can make greater profits by selling less product. Mix in the speculators in the futures markets, and oil becomes more expensive than its intrinsic value. Forget Alaska. Mexico via the state-owned PEMEX oil company is sitting on untapped fields believed to be larger than the Saudi reserves. Yes, more oil than Saudi Arabia. Mexico lacks the technical expertise to reach the oil, and internal politics are blocking any foreign companies from assisting. Just as OPEC is a cartel, effectively so are the major oil companies. Profit maximization is the name of the game. There isn't any economic justification I can see to support current oil prices. That, however, will not prevent the cost of oil from rising. Only when alternative sources of energy (wind, solar, hydro, maybe pebble bed reactors, etc.) reach critical mass will oil drop in price. Remember 2/3 of our energy requirement are from U.S. resources. We rely on imports for the remaining 1/3. Alternatives do not have to replace 100% of our energy needs (but it would be nice).

bob cimino SCRANTON PATRIOT

If the strategic petroleum supply has never been touched, how come they've been adding to it over the years? How much of it is stored on the Bushkids' Ranch in Crawford, Texas? And other fat cats' farms around the country.

R CIMINO SCRANTON PA PATRIOT.

Stop and investigate the spec players and goofy Cramer for talking the price up every day.

Squeezebox

Why is U.S. refinery capacity such a problem? Just ship the oil to Mexico or Canada and let them refine it for us to our specifications before shipping it back home. Is there anything in Mexican law that says foreigners can't own oil refineries?

Craig

All of these "let the free-market system work" arguments are so amusing. Right. Like we did with Enron until their greedy manipulation of the system crashed the economy in California and the U.S. Like the lending companies did with their lies about the risks of their loans extending credit out to people who couldn't deal with it, and pushing the cost of on others. Over and over again we see these corporations and their rich fat cat owners manipulating the market, the tax system, and the U.S. government to rake billions down their maws, and people still--still--sit around and swallow this bull about the free market.

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