The US Strategic Oil Reserve; should we open the taps now or wait until it is really needed?

There has been some mainstream news chatter regarding the call by the left to open the tap and use it to reduce the price of oil over the past few days. Is it a good idea or not? In my opinion, as a prepper, we should leave it alone and allow it to serve its purpose. Releasing what few barrels we do hold in reserve may cause a one day dip in the prices, but it won’t solve the problem of dramatically rising prices and it never has. The real problem with using the reserves as a strategic financial instrument is that there simply never has been a large enough supply to really change the course of prices at the pump.

How much do we really have? Not much, according to the DOE’s STR information. As of November of 2010 we only had 726 million barrels of oil. Less than 300 million barrels of that is in sweet crude, which is the grade that gets distilled into gas for your eco-friendly car. Surprisingly enough, most of the sweet crude we get doesn’t even come from these countries that are in such turmoil.

So why is the cost climbing like Ivy on a brick wall? Speculative investors are the real reason for this increase. It’s the same reason gold and silver are approaching, and even passing record high prices on the market. People want it because they feel they can sell it next month or even next week at a higher price and make a fortune from the sale of it. They create their own pressure to buy, thus creating a market where the sky becomes the limit. This chart below shows what we had in inventory as of last year. It has increased since then, I presume, but even if it has climbed to one billion barrels it still wouldn’t solve the problem in the long term.

STRATEGIC PETROLEUM RESERVE INVENTORY
INVENTORY AS OF NOVEMBER 30, 2010
SWEET SOUR TOTAL
292.5 million bbls 434 million bbls 726.5

Source:
DOE inventory summary

For some strange reason the left seems to feel as though the laws they have placed into existence are only applicable when it is convenient for them to find another way to control the populace, and this is turning into just another one of those instances. The Strategic Oil Reserve was created in response to the 1973/74 oil embargo, and its purpose is to act as a buffer should the supply of oil to America again becomes disrupted in similar fashion. It can never exceed one billion barrels in quantity, and at the most, should the president order a drawdown and sale of the reserves, that drawdown cannot exceed 30 million barrels total for each drawdown when circumstances other than a disruption of supply should occur.

How does a situation such as this one play into our preparedness planning?

In many ways, actually. I have long promoted the idea that we need to develop alternative modes of transportation for the time when fuel for our vehicles becomes prohibitively expensive. Until we begin to seriously harvest our own in ground reserves by offshore drilling and other means we will remain at risk for fluctuating, but steadily increasing market prices for our energy needs. Get a car that ahs higher mileage. Buy and ride a bicycle to work. Learn to walk to more places. The cost of gas and diesel for our transportation will always be a primary factor in our preparedness planning.

Will a drawdown of these reserves really help lower the costs? Not in the long run. You see, for each barrel of oil (40 gal.) we can only get about 19.5 gallons of gasoline. That means even if these 30 millions of barrels are introduced into the distillation stream, we only get 61,538,461.5 gallons of gasoline. According to the DOE, we consume, as a nation, 378 million gallons per day of gasoline product. That means this drawdown will only introduce a few hours’ worth of gasoline product, for one day into the retail system that puts gas in our car or truck. Does it really make sense to drawdown our drought fund of fuel for one meal? It would be like dipping in to your cans of long term storage food because you don’t want to pay for a burger at MacDonald’s.

We get over half of our oil from the western hemisphere and other places not impacted from the unrest these countries are experiencing today, and only 17% comes from the Mid-East. 22% comes from Africa, but most of it doesn’t come from any of the countries that are embroiled in the civil unrest that are changing these countries governments, so why the increase in prices? There has been no slow down or shortage of supply, so that does not affect the age old rule of supply and demand. Again, the cause of our trouble is through the mechanism of speculative investment, and the curtailment of that sort of investment is where the real solution lies, not by dipping into our survival supplies we call the Strategic Oil Reserve.

This is especially so in light of today’s reports that Light Sweet Crude for the April delivery contracts dropped by .64 cents today on the NY Mercantile Exchange. A Market Watch article quotes Tyche Capitols Tariq Zahir as saying “The entire energy complex is trading on geopolitical headlines. The ‘day of rage’ in Saudi Arabia set for Friday should keep a floor in the energy complex,”… seems to me as though things will wash out in the spin cycle, but even if it does, and prices drop back towards $75.00 per barrel when all is said and done, we will eventually be seeing $150 per barrel within the next two years, and possibly even much higher, depending upon how the geopolitical scene plays out, especially in regards to the 2012 presidential race.

Preppers beware! There will come a time, and maybe soon whereby we will need to make plans for the coming times without considering the availability of petroleum for our needs. It simply won’t be there for many. And for those whom it will be there for, it will indeed be a pricey commodity. Make your plans accordingly.

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