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Friday, June 24, 2011

Obama Leaks Some Oil

Obama's energy department yesterday announced it would release 30 million barrels of oil from the Strategic Petroleum Reserve, which holds a total of about 726 million barrels, or about 160 days supply at the maximum withdraw rate of 4.4 million barrels/day.  For reference, U.S. consumption is currently about 20 million barrels/day total, of which about 10 million barrels/day is imported.  

So Obama just spent $12.5 billion (at market prices) to temporarily lower oil prices.  In theory, this will soften the effect of lost Libyan production.  

The problem is, the energy department will have to refill the reserves, buy purchasing the 30 million barrels, or waiting to paid in royalties from oil producers.  

I am not sure if this was a valid use of the SPR, as we should be careful not to blow our oil reserves whenever the price gets high--it should truly be reserved for emergencies.   Loss of production from Libya is not an emergency--it was a foolish policy decision by the U.S. and NATO to go to war with wily Col. Gaddafi.

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