The Strategic Petroleum Reserve Failure

A few weeks ago, the Obama Administration announced it would release 30 million barrels of oil from the nation’s Strategic Petroleum Reserve.  The United States consumes about 20 million barrels a day, so that wasn’t a very large oil infusion, and since the SPR contains only 726 million barrels, it’s no substitute for a steady supply of domestic oil.  The only reason for the Administration’s move was to generate a little positive press coverage with a modest dip in the price of oil.

Like all government “stimulus” programs, the effects of the SPR release were temporary.  The price of oil dropped by about five dollars per barrel… but two weeks later, the price is right back where it started.  In fact, it’s a little higher than it was on the day of the release.  Supposedly negative public reaction has convinced the Administration not to try this gimmick again.

This is merely the latest demonstration of a principle that statists refuse to accept: the government cannot efficiently allocate demand.  It can suppress demand through various means, but it doesn’t really go away.  A quick “stimulus” of oil did nothing to change the high demand for fuel, or our inability to meet it with domestic sources.

Another widely discussed statist trick is suppressing demand by raising the price of oil artificially, through a heavy new gas tax.  The CEO of General Motors made headlines last month with this very suggestion, in the hopes that consumers would be willing to buy more expensive and undesirable high-efficiency cars, if gas became more expensive.

In this scenario, the demand for gas doesn’t really dissipate.  People still want to drive, and they’d rather not cram themselves into unsafe, unappealing little econo-boxes that don’t have room for their families and groceries.  As gas becomes more expensive, however, the cost of travel becomes greater than the perceived cost of canceling other activities.  People stop making “unnecessary” recreational trips.  They go out less often, and make fewer long journeys.  At the margins, people who can’t afford vehicles that meet expensive new CAFE fuel-efficiency standards don’t buy cars at all.

This has the effect of shifting the demand for travel into a less economically productive configuration.  There is less shopping.  Fewer new cars are purchased.  Industries that depend on affordable short-distance travel, such as deliveries, suffer from dwindling sales. 

People want to drive, oil companies want to sell fuel, and auto companies want to sell appealing cars.  Instead of allowing supply and demand to meet organically, the government is distorting them… and unleashing forces much too powerful to sedate with a few million barrels of oil from the strategic reserve. 

It could be said that one of the deadly flaws of statists is their inability to appreciate just how powerful demand can be.  They see a delicate fountain they can adjust with ideological precision, when the reality is more like a surging ocean, and it is far more than 30 million barrels deep.