NCPA - National Center for Policy Analysis

To Tap Into The U.S. Oil Reserve, Or Not

September 20, 2000

The Clinton administration is reported to be weighing the pros and cons of tapping into the government's emergency oil reserve in an effort to hold down fuel prices. Needless to say, the decision has a political dimension, as well as an economic one.

Politicians from Northeast states are exerting pressure to access the 570 million Strategic Petroleum Reserve -- hoping to head off shortages of home-heating fuel this winter and price hikes.

The campaign of GOP presidential candidate George W. Bush opposes the idea. And many experts concur for a number of reasons.

  • Such an action could distort the workings of the free market for oil -- possibly increasing the chances of future shortages.
  • The government has only a limited ability to move oil prices -- and trying to do so now would reduce the impact of tapping the reserve during a more serious crisis later.
  • Dumping government-owned oil on the market could undermine efforts to enlist Saudi Arabia's help in increasing the supply of oil.
  • Oil industry executives say opening the reserve wouldn't make much difference because refineries are already running at 96 percent of capacity and wouldn't immediately have the ability to absorb a large release of crude.

The reserve is located in four hollowed-out underground salt domes on the Gulf Coast -- two in Louisiana and two in Texas.

Source: John J. Fialka and Jacob M. Schlesinger, "Debate Intensifies Over Tapping U.S. Oil Reserve," Wall Street Journal, September 20, 2000.

 

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