One major aspect of the wave of anti-government movements washing through Arab lands is their impact on world oil supplies. Nervous buyers worried about major disruption to supplies have driven the price of crude up to former record highs. We all feel the result at the gas pump.
There is one way to manage the wild gyrations in oil prices. Following the oil embargoes implemented by OPEC exporters in the mid-1970s the USA created its Strategic Oil Reserve. The reserve was authorized to hold up to one billion barrels to use in times of disruption in suppply. The last time we used it was following Hurricane Katrina that devastated our Gulf of Mexico oil production. When normal supply was restored President Bush ordered new purchases for the reserve that raised it to just over 700 million barrels. For some reason Democrats in the US House passed a bill to suspend purchases and the amount in the reserve stands at just over 700 million barrels. The reserve is the equivalent of about one month’s consumption in the USA or about 60 days of our imports.
I would suggest that the Strategic Oil Reserve be reorganized to be an “Oil Price Stabilization Reserve.” This new reserve could be used to limit rapid increases in the price of oil by selling some of it to increase supply and thus reduce prices. When prices fall the reserve could replentish its supply. This buying and selling by such a large buyer would be a very effective means to moderating swings in the price of oil.
I am not sure the optimum size of reserve needed to stabilize prices but one billion barrells would have substantial impact. We can add more if needed.