Don't tap the reserve

Oil prices: Strategic petroleum reserve was created for supply disruptions not price hikes.

March 06, 2000

WITH gasoline and heating oil prices reaching their highest levels in more than a decade, lawmakers in Washington want the administration to release oil from the nation's strategic petroleum reserve. That would be a mistake.

Created in 1975, the reserve was intended to be tapped for national energy emergencies similar to the 1973-74 oil embargo. The U.S. imports about 10 million barrels of oil a day -- more than half its consumption -- and is dependent on steady supplies of oil from the Middle East, Asia and Mexico. The reserve was intended to prevent conflicts or boycotts from interrupting the nation's industrial activity.

No such interruption has occurred. There is enough oil to keep the nation's economy operating. The immediate problem is that the current U.S. demand is outstripping the worldwide supply, resulting in higher prices.

Releasing the limited amounts of oil from the reserves may temporarily augment supplies and stabilize prices. But if Asian and European economies gather strength, the limited supplies in the oil reserve could not keep them down over time. More important, drawing significant amounts from the reserve now would make the U.S. vulnerable in the event of future supply interruptions.

Fortunately, the current jump in energy prices has had little discernible impact on the nation's economy. Inflation remains low; industrial production continues at a robust pace. The rub is that consumers of heating oil and gasoline are unhappy about the higher prices.

Mollifying consumers -- who are still obtaining gasoline at bargain-basement prices compared to the rest of the world -- during an election year should not be the reason for tapping the petroleum reserve. If over time, the oil production cutbacks create dislocating shortages in the U.S. economy, then extracting oil from the reserve may be a more reasonable option.

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