Oil Markets: Should The US Tap The SPR?

| March 9, 2011 | 0 Comments

I sat at my desk sipping a cup of freshly made coffee this morning when I got to thinking about the energy markets.

Why did my coffee remind me of the energy markets?

It’s probably because this particular mug of coffee tastes like crude oil.  As a matter of fact, I imagine it tastes a lot more like Canadian tar sands in a cup.

Yep, it’s that bad…

But I still drink it!  The thick dark steamy goo supplies me with a thunderous jolt of caffeine.  There’s enough caffeine in one cup to make a hippo do back flips.

After a few sips, I can feel my heart start to flutter.  The caffeine courses through my veins.  In no time at all, I’m on a caffeinated buzz higher than the price of West Texas Intermediate (WTI) crude.

And speaking of crude…

The big move higher in oil has many worrying about the US economy.

With oil at its highest since 2008, some economists say these prices could snuff out the US economic recovery.

I couldn’t agree more…

High oil prices equal high gas prices.  And the higher gas prices go, the less consumers have in their pocket to spend on discretionary goods.  It’s not a good scenario.

In fact, some “experts” are now saying we need to tap into the US Strategic Petroleum Reserve (SPR) to put a temporary end to high gas prices.  They say unleashing crude from the reserves will put such a glut on the market, oil prices will have nowhere to go but down.

While I agree oil and gasoline prices are higher than they should be, I don’t think tapping the SPR is the proper solution.  Before I explain why, let’s first look at the facts behind the SPR.

One big mug of crude…

The SPR is located in four storage facilities in Louisiana and Texas.  Holding 726 million barrels of crude, it’s the world’s largest emergency oil stockpile.  In case of a real emergency, the SPR holds enough oil to meet our needs for about a month.

Here’s where I differ from the “experts” who want to tap into this resource.

While the current situation in the Middle East is no doubt worrisome… it’s not a real emergency yet.  Yes, gas and diesel prices are much higher than we like paying.  But paying an extra $0.50 at the pump, in my mind, isn’t a true emergency.

Will high oil prices put the US economic recovery at risk?  Yes it sure might, but let’s not mix the issues.

As of right now, the US is already awash with oil…

As of today, there are no threats to US oil supplies.  In fact, recent EIA inventory reports show the US has a glut of oil in storage.  That’s right, US crude oil inventories are still well above their five year average.  And they have been since early 2010.

Clearly, the oil market is ignoring this excess supply.

The oil market is focusing on the uncertainty in the Middle East. Speculation is running rampant on whether the crisis will spread to oil rich Saudi Arabia.  These worries have oil prices hitting new highs nearly every day.

So why is tapping the SPR a bad idea?

The market’s not responding to the existing glut of oil in the US.  How would putting more of a glut on the market make any difference?  The SPR is a drop in the bucket compared to the volumes of oil coming from the Middle East.

We shouldn’t waste the SPR on a fool’s errand.

And here’s where my mega dose of caffeine kicks in…

Instead of using the SPR, our elected officials in Washington should do their jobs.  They should come up with a plan to get us off of overseas oil once and for all!  The US desperately needs an energy plan to carry us into the future.

I’ll even point them in the right direction…

Our country is sitting on a huge supply of natural gas.  Some say it’s enough to last nearly 100 years at current usage rates.  With a flick of a pen, our president could give huge incentives for the transportation industry to switch to this readily available fuel.

If the US were energy independent, uprisings in the Middle East wouldn’t have such a huge impact on US energy prices.  And the current problems overseas wouldn’t be putting our economy at risk in the first place.

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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