June 21, 2018
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Use of strategic oil reserve justified to counter speculators, revive economy

By Gordon L. Weil, Special to the BDN

When I became head of the Maine energy office, in the wake of the second major oil crisis in 1979, I chose to give top priority to energy emergency preparedness. The state had to be ready to deal with an interruption in the supply of oil or electricity.

After I left state government, I was asked by the U.S. Department of Energy to serve as a consultant on the use of the Strategic Petroleum Reserve, or SPR, the vast supply of oil stored in salt caverns in Texas and Louisiana. The key decisions about the use of the SPR dealt with the conditions under which it would be tapped and the physical process of getting it from storage to the market.

The clear intent was to have the SPR available for situations in which political actions in the Middle East threatened to disrupt oil supplies. At that time, using 20-20 hindsight, we envisaged mainly cases where oil would be used as a weapon against our support of Israel as in the 1973 oil embargo.

Now, the International Energy Agency has said that 60 million barrels of oil held in reserve should be drawn out and put into the market. Half of that oil will come from the U.S. reserves and the other half from the reserves of 27 other countries.

The American SPR holds 727 million barrels. The United States uses 18.8 million barrels a day, about half of which comes from domestic production.

The action is not simply a decision of the U.S. government, though it surely could have been vetoed by this country.

Was the decision to use some of the world’s oil reserves justified?

The so-called “Arab Spring,” the move to dump dictatorial regimes in several oil producing countries, has caused uncertainty in the oil market. Speculators have used the turmoil as an excuse to drive up the price of oil. Their actions have broken the price mechanism that should measure the relationship between how much we need and how much is available.

The situation has been further complicated by the prolonged conflict in Libya, a major player in the world oil market. In this case, nobody can dispute the uncertainty about when and to what degree supplies will be resumed from this country.

Finally, just a few days ago, the OPEC oil cartel failed to agree on putting more oil into the market to stabilize prices, even though that action might have restored demand for petroleum products. It is not yet clear whether some countries will cheat and let out some oil no matter what their partners decide.

Although we never contemplated the kind of changes now taking place in the Middle East, I have no doubt that the use of strategic reserves was intended precisely for this kind of situation.

Middle East politics, directed against regimes there and not against us, have threatened our supply.

In short, the use of reserves is appropriate in the current situation.

Besides, oil price speculation comes at a bad time. With the United States and Europe struggling through a slow recovery from recession, economic growth is undercut by high oil prices.

The U.S. economy depends heavily on consumer spending. We want it to pick up again, but the high cost of fuel, especially gasoline, takes money out of people’s pockets that could have flowed into the purchases needed for recovery.

Because Congress cannot agree on putting any more funds into stimulating the economy, there seems to be little that President Barack Obama can do to push recovery. The biggest tool government has to promote growth is spending money, but the budget deficit, caused by wars and tax cuts, prevents further spending.

Some Republicans have charged the use of the SPR is Obama playing politics. To the degree he has chosen to use one of the few tools remaining at his disposal to get the economy moving again, they are right.

Most importantly, the U.S. is acting as part of a group of countries rather than by itself.

That approach is at the heart of Obama foreign policy under which other countries share with us the burden of dealing with difficult and costly problems.

So the president gets to take an action to cut gasoline prices and stimulate the economy, which is consistent with his policy, for legitimate reasons that go well beyond domestic concerns.

Gordon L. Weil, an energy consultant, was Maine energy director, public advocate and commissioner of business regulation.

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