CNN reported that the United States Senate voted today to stop directing some 70,000 barrles of oil per day into the government's strategic oil reserve. See the full article at http://money.cnn.com/2008/05/13/markets/congress_strategic_oil_reserve.ap/index.htm?cnn=yes. The House was scheduled to vote on the same issue later in the day.
The Senate's goal, no doubt, is to lessen the upward pressure on the price of oil by making more oil available to the market. This token measure, however, is probably only symbolic, because 70,000 barrels of oils is wholly insufficient to have any meaningful impact on the price of oil.
What is painfully apparent is that the United States has virtually no meaningful energy policy when it comes to oil. The price of oil continues to rise steadily. The overall American economy continues to be negatively impacted by high fuel prices. And Americans continue to be convinced that our government is helpless to do anything about it. It is simply a matter of supply and demand - we are told.
The first thing that needs to happen is for our government to stop treating oil and gasoline like free market commodities. The supply of oil, gasoline, and diesel are too important to the economy to take a laissez-faire attitude toward price fluctations. Addtionally, the industry is essentially an oligopoly, at least domestically. There are very obvious reasons for more governmental involvement in supply and demand. Other types of energy are already more heavily regulated and controlled. Take electriciy companies, for example, which, for the most part operate as public utilities. What our government needs to do is to take more strategic steps to have some influence on the supplies of oil and fuel. There are any number of things that could be done.
For example, not so long ago oil was below $100 per barrel. There was also a time not so long ago when gasoline was $.99 per gallon. Why couldn't the government buy up future committments to deliver oil or gasoline at current market prices when prices are low? Then, when prices rise substantially, like they are now, start calling in their orders for delivery of the lower cost product into the US market. What I am talking about is a deliberate attempt by the US government to smooth out or control the impact of wide fluctations in fuel prices on the Amercian economy. Lord forbid if our government recognizes that certain things - like the supply of energy - are too important to leave strictly to the world market.
The bottom line is that energy is shaping up to be the most dangerous crisis to ever face the American government and a hands off approach is not going to cut the mustard. Everything that can be done, must be done. A multi-faceted approach is appropriate. It is important to lessen domestic dependence on foreign sources of oil both by increasing domestic supply and by developing and beginning to use alternative sources of energy. This is a lesson we should have learned back in the 70's during the last energy crisis. What does it take to get our government to think strategically and act responsibly?
Additionally, when will our leaders realize that it doesn't really matter how much oil is in the market or how much it costs, if we do not have the capacity to convert it to fuel. We need more refineries and a higher output of gasoline and diesel fuel - and we need it yesterday. I have yet to hear of any plan being offered to the American people to spur investment in production facilities. One question that has to be asked is what incentive producers have to produce more - if they can produce less and get paid more?
Is a srategic oil reserve needed? Yes. Can a strategic reserve be used to impact the market price of oil. Probably not. It is highly unlikely we can store enough oil to have any meaningful impact on the market price. Other creative market mechanisms may be more appropriate. Although their heart is in the right place, the Senate's gift of 70,000 barrels of oil to the domestic oil supply will probably have no noticeable impact on the price of fuel. Congress needs to have the courage to take dramatic steps to spur development and use of alternative fuel technologies while simulataneously encouraging an increase in the domestic supply of oil. We are way beyond token efforts at this point.
