A while back I had read a study that advocates getting rid of the SPR. The study was developed by the CATO institute (a think tank based in DC). The study suggests that we should abolish the SPR because of several reasons but here are the highlights:
1. The authors of the study estimate the oil price in the SPR to be around $65 - $80 (analysis in 2004) which was 3 times what the DOE estimates (around $30). They arrived at those numbers by taking into account inflation, in-kind contributions (instead of the royalties, the SPR gets oil directly from oil companies and thus the cost of acquiring the oil is taken off the books) and opportunity costs.
2. They argue that the SPR has only been tapped a few times (for reasons that Ben explained today) and the releases were too modest and too late (with the exception of Katrina).
3. They also argue that private stockpiles are not really suboptimal and even if they are the solution is not for the government to create its own stockpile but rather maybe subsidize private inventory holders. Some argue that private actors might hold back on releasing inventory to cause prices to rise even further but then again it’s not like the government has been releasing oil from the SPR left and right…
4. The SPR exists as an embargo hedge but as we all know there is no such thing as an embargo. Oil will always be available to whoever is willing to pay for it.
Based on the above, along with other considerations, the study recommends that the government sell the oil in the SPR and get out of the oil stockpiling business.
I’ve included a link to the full report. I think it’s an interesting reading and it does raise some important questions about the SPR. I’m personally not convinced that a government stockpile of oil is the smartest way to go.