More Oil from the Tap—Will it be the Economic Elixer?

By: Dr. Lynn Reaser

Last week, the International Energy Agency announced plans to release 60 million barrels of oil, with the United States contributing half of the total.  President Obama led the initiative in hopes that the actions would help drive down oil prices and boost the economy in the second half of the year.

Oil reserves have been tapped only twice before—after Iraq attacked Kuwait in 1990 and when Hurricane Katrina devastated the U.S. Gulf Coast in 2005.  Will the latest supply of additional oil to the market provide the critical spark for the U.S. economy all would like to see?

The release of oil reserves is likely to have only a temporary impact on oil prices.  30 million barrels represent about two days’ of the crude oil supplied to U.S. refineries.  At some point, these reserves will need to be replenished.  Oil prices had already been under downward pressure because of a slowing in global economic conditions.  Companies have also been switching to cheaper natural gas where feasible. 

The Strategic Oil Reserve was intended for emergencies, such as Katrina, where oil supplies were in severe jeopardy.  While likely to have little economic impact, the oil release raises fundamental questions about the Reserve’s purpose.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s