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Jun 24

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Current release of Strategic Petroleum Reserves is a misuse of a national asset

The United States started the Strategic Petroleum Reserve in 1975 pursuant to the Energy Policy and Conservation Act. Then, the underlying cause for the new policy was the 1973-74 oil embargo. Since its creation 38 years ago, the reserve has been drawn down only four times, and never by as much as what was ordered yesterday.

Releasing oil from the Strategic Petroleum Reserve is sensible when we are facing a natural disaster or a major disruption in supplies. Currently, this is not our situation. The announcement to release the oil reserves claimed:

We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery,”

This explanation is farfetched.  Although oil prices could not be described as low, the approximate $95 pre-announcement price per barrel is substantially below the record high price of $ 147 per barrel. The Libyan challenges existed since mid-March or earlier, meaning more than three months ago. Most Libyan oil goes to Europe.

Earlier this week, the Federal Reserve lowered its forecast for economic growth. The weakening economy, poor jobs reports, and falling housing prices all cause President Obama political challenges. This use of the strategic oil reserves is a rather transparent effort to stimulate the economy in ways that could not be done with current Congressional support. Since additional economic stimulus measures are unlikely, the Administration is attempting to stimulate the economy by lowering energy prices through the strategic oil reserve.

But that is not the purpose of the reserve. President Obama previously stated that the reserve should only be used in the event of an emergency. Our current economic challenges and the President’s resulting falling poll numbers are not the emergency that was anticipated when the reserve was established.

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2011/06/current-release-of-strategic-petroleum-reserves-is-a-misuse-of-a-national-asset/

1 comment

  1. Niki

    Book-marked, I really like your site! 🙂

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