The Strategic Petroleum Reserve is apparently a strategic political reserve.
We now tap it not in times of crisis, but in times of desperation, hoping that we can quickly return to the collective denial of our oil dependency.
The massive salt domes that house U.S. crude reserves were supposed to be opened only in times of dire market disruptions. Instead, it’s become a convenient response to rising gasoline prices.
“It’s a knee-jerk reaction,” said Michael Economides, an energy expert and professor at the University of Houston.
With the specter of $4 at the pump still hovering over the summer driving season, even though prices had dipped in recent weeks, the Obama administration on Thursday announced it would release 30 million barrels from the reserve, or about 1.5 million barrels a day through late July. The release was part of a coordinated international response to blunt rising prices after OPEC failed to do so earlier this month.
In opening the spigot, Energy Secretary Steven Chu conveniently invoked images of international solidarity.
“We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery,” he said.
28 nations in unison
In all, the 28 member countries of the International Energy Agency pledged to release 60 million barrels of reserves.
News of the releases had an immediate effect on the crude market. Oil fell $4.39 a barrel Thursday, to $91.02, its lowest in four months. The decline came as oil prices already were falling because weak economic reports — including a rise in unemployment in the U.S. – raised fears that oil demand would decline.
The real goal of a coordinated release is more psychological, though. With OPEC failing to address the price situation at its stalemate meeting in Vienna a few weeks ago, consumer countries felt they had to act on their own to calm the market.
Europeans are particularly concerned about the loss of Libyan crude, for which their refineries are among the biggest buyers. The Obama administration, despite Chu’s comments, is more concerned about pump prices. According to a recent poll, Americans fear higher gasoline prices more than rising unemployment.
Releasing crude reserves can put a short-term damper on prices, but it doesn’t last.
“It’s not really going to have an effect” over the long term, Economides said.
In April, Economides told me he thought gasoline could hit $5 a gallon nationally by the end of the summer. He still does.
They’ll go back up
Without an increase in oil supply or a downturn in demand, prices inevitably will creep up again. The irony is that having drawn down reserves, the U.S. will have to replace them at some point, and it’s likely that it will do so at higher prices.
Meanwhile, Economides noted, China, which is out of compliance with International Energy Agency reserve quotas, will likely use the dip in prices to restock its reserves at a relative bargain.
So we will pay more later for the convenience of paying less now and strengthen our biggest competitor in the global oil market at the same time.
The U.S. economy remains fragile, and rising gasoline prices definitely pose a threat. A day before Obama tapped the reserve, Federal Reserve Chairman Ben Bernanke lowered the central bank’s growth forecasts for the year. The Fed has been unable to jump-start the recovery, leaving it vulnerable to higher energy prices.
Flooding the market with our crude reserves might make the summer a little more bearable for vacationers, but it’s not going to help the economy or our energy needs in the long term.
Whatever the name, our use of the petroleum reserve is no longer strategic. It’s become the Desperation Petroleum Reserve.
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