SELL THE PETROLEUM RESERVE
November 14, 2007
The U.S. government should sell the Strategic Petroleum Reserve (SPR) -- which now holds about 700 million barrels of oil -- because it would make money for the Treasury and help consumers by bringing oil prices down, says David R. Henderson, a research fellow with the Hoover Institution,
Imagine, for example, that the U.S. government began today to sell two million barrels a day and make up for the loss by buying today the same amount in the December 2008 futures market at $87.60:
- If it earned the spot price of $96.32 on each barrel and had a $1 per-barrel transactions cost, it would make $7.72 a barrel; the government would make daily profits of $15.44 million.
- If the differential in prices persisted, the feds would make $5.6 billion a year; this is chicken feed to the federal government but it would allow the feds to cut some tax that yields $5.6 billion.
- If the hated Alternative Minimum Tax is not reformed this calendar year, for example, it will capture about 20 million new victims; reverse arbitrage would give these new victims an average relief of $280.
Of course, if the government did sell two million barrels a day, it would bring down the world price of oil; so the U.S. government would not benefit as much as Henderson estimates, but Americans as a whole would benefit.
There's an even more radical step the U.S. government should take that would benefit consumers also while benefiting the government, says Henderson:
- The government should sell the SPR oil and not replace it.
- If the government made even $80 a barrel on its 700 million barrels, it would make $56 billion, which is serious money even to the feds.
Source: David R. Henderson, "Sell the Petroleum Reserve," Wall Street Journal, November 13, 2007.
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