By Sal Risalvato
The dictionary defines “strategy” as: a carefully devised plan of action to achieve a goal.
As the price of gasoline continues to rise, many politicians and commentators are calling for President Obama to open the Strategic Petroleum Reserve (SPR) in an effort to lower national gasoline prices. Their rationale, they believe, is that tapping SPR will lower gasoline prices and stabilize energy markets.
Opening SPR would be a foolish move for a number of reasons.
As its name implies, SPR is a strategic asset that was intended to be used only in limited situations, primarily to alleviate a significant disruption in the national oil supply. This means it was to be used for a legitimate emergency situation, like in wartime, natural disasters, or even an OPEC nation taking advantage of our dependence on foreign oil, and cutting off our supply.
Market conditions today do not reflect an emergency situation to justify its use as was envisioned by its creators. Rather, industry statistics over the last six months illustrate that supplies of crude oil have remained stable despite the unrest in the Middle East. Furthermore, demand for crude oil has been flat and is trending toward a decline, undercutting any assumption that a supply problem exists to rationalize tapping SPR.
Officials need to keep things in perspective. The current rise in gasoline prices is NOT a supply and demand problem, and any attempt to compare it to the gasoline lines of the 1970s is utterly misleading and disingenuous. Unlike during that genuine crisis, gasoline today is widely available, and there are no supply shortages.
I sympathize with frustrated motorists, as gasoline prices rise. In fact, the gasoline retailers who make up our membership are also suffering as their profit margins shrink under the onslaught of sky-high pump prices and back-breaking credit card processing fees.
Although I want to help the public and my members, tapping SPR isn’t the answer. Doing so would have negligible affect on the market and amount to nothing more than a “feel good” attempt to persuade the public that “something is being done” by the politicos in Washington to address high pump prices. All of this ignores the reality that the price of gasoline is high because speculators in the market place are worried about how the instability in the Middle East will affect the long-term energy markets encouraging investors to gamble the price of oil upwards.
Imagine the disastrous effects of a real supply shortage. Should we actually be cut off from oil by our foreign suppliers, and we could not rely on the SPR, our nation and our economy would be crippled.
The SPR currently has a supply of 725 million barrels, which represents only 48 days of consumption. If we were to begin to use that oil to stabilize energy markets today, and not as a supply safety net, we will be jeopardizing the security of our nation. Imagine that we did not have the SPR to rely on, and our foreign supply is really shut off? What will happen to gasoline prices then? Gas prices could easily hit $7 a gallon, and even $10 is possible. Why would the President risk such a horror?
Has anyone thought about what it will cost to refill the SPR at tomorrow’s much higher price of oil? The math is frightening and could easily be half a trillion dollars.
The reserve is not a well that’s supposed to be tapped when times are tough; it’s a resource that’s to be used when no other alternatives exist or when natural disaster strikes. We should keep these facts front and center or run the risk of squandering this important asset merely to save a few pennies at the pump. That would be more than foolish, that would be dangerous and put us all at risk.
Sal Risalvato is a former small business owner and currently the Executive Director of the New Jersey Gasoline-Convenience-Automotive Association (NJGCA), a state-wide trade association representing 1,500 small businesses. This “pre-buttal” is an opening effort to challenge the arguments of pundits and critics against small-business retailers before they convey them.
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