Misuse of the Strategic Petroleum Reserve Should Not Be An Option

Unforeseen crises tempt political leaders to “do something” to appear responsive to the will of the people.  The current turmoil in the Middle East is one such episode.  Washington thinks the answer to short-term turmoil is to tap the long-term oil stocks in the Strategic Petroleum Reserve.  Let’s think about this some more before we act.

The SPR has a very specific mandate. It exists to provide supply in the event of disruptions to physical delivery.  No such disruptions are occurring now in the U.S.  The price of crude is rising worldwide because oil consuming nations everywhere must pay for alternatives to the Libyan production that is now offline.  The price signal sent by curtailed non-U.S. production incentivizes U.S. producers to reactivate wells that do not produce economically at lower prices.  The rig count for U.S. producers has recently risen, along with the share prices of U.S. drillers.

Tapping a reserve intended to provide an emergency supply for national defense just to lower pump prices for American casual motorists is a huge error.  Previous drawdowns during the Persian Gulf War and Hurricane Katrina set unfortunate precedents.  Politicians now consider the SPR to be a political football that can win votes from Americans addicted to spontaneous driving.

About Anthony Alfidi 128 Articles

Affiliation: Alfidi Capital LLC

Anthony Alfidi is the Founder and CEO of Alfidi Capital. His firm publishes free investment research with honesty and humor.

Mr. Alfidi holds a Bachelor's degree in human resource management from the University of Notre Dame (cum laude) and an MBA in finance from the University of San Francisco. He is a life member of Beta Gamma Sigma, the academic honor society for business majors. He has been a private investor since the 1990s.

Be the first to comment

Leave a Reply

Your email address will not be published.