Bush Misses Boat on Strategic Petroleum Reserve

Hurricane Katrina has killed dozens at least and the insured and uninsured losses may run as high as $25 billion. These effects, however, are local. The interruption of activity in the Gulf of Mexico’s oil industry could have global implications. President Bush, failed oilman, has the power to keep the market from running away with itself, thereby endangering the global economy, but apparently, he needs to finish clearing the brush on his Crawford, Texas, ranch instead. It is a shame he doesn’t play the violin – one could nickname him “Nero.”

The US has 700 million barrels of crude oil in its strategic stock pile – the Strategic Petroleum Reserve. Established in 1975, its purpose is to fill in any serious shortfalls in oil supplies. Oil has only once been released under emergency conditions in 1991, related to the Saddamite invasion of Kuwait. Other times, the SPR has “loaned” crude to producers and refiners including in 2002 after Hurricane Lily and last year after Florida got hit by four hurricanes. And to be fair, the White House is mulling the idea over.

White House spokesman Scott McClellan said, “Obviously, the Strategic Petroleum Reserve is there for emergency situations, and that would include natural disasters. But it's just too early to know at this point.” Of course, oil shot up to $70 a barrel on the news of Katrina’s approach, and off-shore drilling, tanker traffic and refining activities all ceased as it passed. And the White House sent Mr. McClellan out to talk.

If ever there was a time for the president to calm the markets, this was it. Even if it is too early to tell, Mr. Bush could have done the oil market and the global economy that relies upon it a huge service had he come out of the ranch house long enough to say that the hurricane has interrupted oil processing and that the SPR’s entire purpose is to minimize the effects of such an interruption. Every drop needed would be released if needed.

The hedge funds and other speculators, who have tacked a $10-$15 a barrel premium onto oil in the last year, would have had no reason to drive the price higher, and indeed, they might have unwound some long positions reducing pressure on crude. Instead, Mr. Bush continued his vacation. Fiddle lessons could be next.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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