Friday, April 20, 2012

Too much crude - Goolsbee opinion




You want to get your antennas up when key government officials offer opinions on important policy matters. The government wants oil and gasoline prices to decline. They would love to use the strategic petroleum reserve as a tool to break prices before the election. Austan Goolsbee wrote an editorial in the WSJ a few days ago that states that we have too much oil in the reserve. The point was to argue that we should draw it down because it dos not makes sense to hold such a large strategic inventory. This is the trial balloon on releasing oil.

How much is enough? Oil crises have not last very long, but what if there is a major disruption in the oil market. Unrest in Saudi Arabia is a likely source. The Iran nuclear issue is another more immediate issue that can take some strange turns. Let's not kid ourselves, even though the SPR is at its highest levels we still need a full tank. It is at 96% capacity and has more than 100 days of reserves. The norm has been around 75 to 80 days worth of imports. This is not a money issue but a strategic issue. The rest of the OECD world does not have a SPR. They hold inventory but not the same as with the US reserve.

Let's keep capacity where it is and move forward.

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