I figure I’ve blathered on enough about windfall profits taxes, so how about another proposal in Obama’s energy plan–selling oil out of the Strategic Petroleum Reserve?
There are 700 million barrels of oil in the SPR–enough to cover just over a month of current U.S. oil consumption, or two months of oil imports. The original philosophy behind the reserve (and the one followed by the Bush administration and endorsed by John McCain) is that it’s to be used only when the flow of oil physically stops–because of war, embargo, or natural disaster. It’s mainly about national security, or at least emergency management.
The Democrats, though, have long seen the SPR as more about economic security. The Clinton administration released oil to temper heating-oil price hikes in the winter of 2000-2001, and in 1996 and 1997 SPR sales were used to help reduce the federal budget deficit.
Given that the main risk from any disruption in oil supplies is an economic one, the Democratic attitude makes more sense to me–although as long as the politicians get to decide when to release the oil, I guess there’s always the risk of them trying to buy elections with it.
I’ve long been intrigued by the idea (I first heard it from oil economist Ed Morse) of semi-privatizing the SPR–that is, putting a few oil traders in charge of the buying and selling and giving them a share of any profits generated. They’d presumably sell high and buy low, thus tempering the volatility of oil prices. Either that or they’d try to corner the oil market, but maybe we could put in some kinda regulation telling them not to do that.
Meanwhile, energy consultant Philip Verleger has been making the rounds arguing that if the SPR would just sell sweet crude and buy sour crude, much of the runup in oil prices in recent months–which he is convinced is mainly due to a shortage of easy-to-refine sweet crude–would be reversed.
Obama appears to have been listening to Verleger–he says he “supports releasing light oil from the SPR now and replacing it later with heavier crude.” (Light=sweet, heavy=sour.) How much? About 70 million barrels, or a tenth of the total reserves. The main problem with the proposal is timing. Oil prices are dropping already. By the time the next president takes office in January this may no longer be an issue. But the idea of releasing oil from the SPR for purely economic reasons isn’t a bad one at all.