Extraction of strategic petroleum reserves

As much as I’m willing to criticize Joe Biden for his largely terrible economic policies. But we still have to give credit where credit is due.

And he has some credit for selling his oil from the Strategic Petroleum Reserve.

Currently there are 2 arguments for selling its oil from SPR. a philosopher; The other is pragmatic.

The philosophical argument is that the government should not be in the business of supplying oil. A strong argument for futures markets is that they give private actors a strong incentive to store oil when they think the price will rise in the future and to sell oil when they think it will fall in the future. The government wound up being an unexpected participant in the oil market. So it is better not to have government in that market. The way to get there is to sell oil.

A realistic argument for selling oil right now is that the current price is abnormally high and will likely be low. October 20 reported spot oil prices The Wall Street Journal On October 21, it was $85.98 per barrel. The December 2023 futures price is reported as $74.81. So this is a good time to sell.

When I was the senior economist for energy policy with President Reagan’s Council of Economic Advisers, one of my two bosses, Bill Niskanen, and I knew we weren’t going to get much support for what we both believed in: ending the SPR. So we advocated a price rule instead: buy low, sell high. In particular, if I remember the 1983 prices correctly, we recommend buying oil when it drops below $20 and selling when it goes above $40. We didn’t get what we wanted, but Biden is coming close. He’s selling when it’s high and I’m guessing he’s buying when it’s low.

But is SPR not meant to deal with crisis situations? To some extent, yes. But how do you know there is a crisis? That’s why Bill and I came up with a price rule. If there is a shortage of oil supply, it will show in the price.

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