The strategic oil reserves were put in place in the 1970s, as the experts put it, "to counter a severe supply interruption." There's enough oil under those salt domes along the Gulf of Mexico to keep the country running ... for about a month, if all other supplies of oil dry up. Which is doubtful, unless something terrible happens on an unimaginable scale.
Some of us think the strategic oil reserves ought to be kept there--in reserve--until a global emergency (read: war) squeezes off all oil from elsewhere. And requires this country to fill up the Navy so it can open up the sea lanes again.
But presidents of the United States of both parties have used the oil reserves for political purposes before. And will again. Joe Biden isn't much different in that way, and his people aren't much counted among the creative set.
The president announced last week that he'd tapped the oil reserves to ease gasoline prices, and said Americans will see lower prices at the pump "before long." Maybe. But such oil releases are always a temporary fix. Oil futures may drop a bit for a week because of this move. But it's not likely to last.
We remember when Bill Clinton released some of the oil reserves during his presidency. It took about two weeks for the price of oil to drop, then climb back up. At the time, a columnist named Charles Krauthammer said the problem wasn't that the United States was keeping too much oil under salt domes, but that:
"This is a country of a million Walter Mittys driving 75 mph in their gas-guzzling Bushwhack-Safari sport-utility roadsters with a moose head on the hood, a country whose crude oil production has dropped 32 percent in the last 25 years but which will not drill for oil in the Arctic National Wildlife Refuge for fear of disturbing the mating habits of caribou--and we're shocked, shocked, to find gasoline prices rising."
There's a reason the law of supply and demand is called a law: It always works.
Gas prices have hit a seven-year high in the United States. You're lucky if you can find gasoline in Arkansas for under $3 a gallon. If you find it at $2.75, fill up and call the neighbors.
The first reason for this may be demand. Americans are moving around again. The pandemic isn't over--and this new strain coming from afar has our attention--but people have decided they can't be homebound anymore.
That decision started over the summer, which is the driving season. It has continued into this holiday season. People are driving to see cousins again. And driving to the football games. And driving to the mall. And driving everywhere else.
As far as supply, Bloomberg reports that "a combination of domestic supply interruptions and trouble in energy markets overseas have made crude oil more expensive."
In August, Hurricane Ida knocked out a large swath of the refining capability along the shoreline down south. The rigs went up pretty fast after that, but the supply of oil remains low. And oil supply is a worldwide issue, not a national one. OPEC isn't increasing production much. (That cartel loves high oil prices.) And energy prices in Europe have skyrocketed because Russia is flexing its muscles as winter sets in.
And on top of all of this, the current American administration has proposed (again) to ban oil production on federal lands, and on his first day in office, President Biden signed an executive order to revoke the Keystone XL Pipeline permit. Someone should tell him that he can't squeeze the oil supply in one Cabinet meeting and then try to increase the supply in another and expect anything other than volatile prices.
How did the markets react to the president's announcement that he'd dump 50 million barrels of reserves into the world supply? Here are a few paragraphs from a Bloomberg story:
"The Strategic Petroleum Reserve announcement had a muted effect on markets.
"Much of the oil will need to be returned to the stockpile by the refiners who buy it, and other countries' contributions were smaller than expected. After an initial dip in prices, oil gained more than $1 a barrel after Tuesday's announcement."
Releasing strategic oil doesn't sound like much of a strategy.
What might work, increasing supply (like drilling for oil) and decreasing demand (which this new covid variety might do, to nobody's satisfaction) would sound like a better plan. But somebody is going to have to explain it to this administration.