Dollars and Jens
Tuesday, March 30, 2004
On the occasion of an OpinionJournal foray into current oil prices and Strategic Petroleum Reserve management, I thought I'd point out that this isn't a short-term price spike or at least not exceptionally so; we can't simply wait a few months for oil to go to $25 (or at least that's what informed people with their livelihoods on the line believe). Oil futures go down somewhat as one takes delivery into the future, and perhaps it would be worth purchasing forward contracts for delivery in September to save a few dollars a barrel if we feel it's worth the chance that we'd need it before then, but after the tragedy in Spain two weeks ago this past Sunday, I'm not sure the administration believes it would be wise to postpone it past then.

A very important point made by the article is easy to forget in our short-term search for solutions:
If every President turned to the oil reserve when prices shoot up, companies would reduce the amount of inventory they are willing to carry and exacerbate the supply problem. ... The oil reserve was not designed, nor should it be used, to relieve consumers at the pump for a few weeks.
Occasional short-term shortages in oil are what make storage worth building, and the accompanying steepness in the oil futures prices is what makes building that storage profitable. For the government to regularly try to import oil from the future is ultimately for it merely to take over a role properly played by the private sector.

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