Is Stockpiling Driving Up the Price of Oil?

Forbes.com is raising the question if it’s possible for congress to stumble into a correct or honorable action on the economic front.

Such an event seems to have occurred in May, with the passage of a bill to halt deliveries of crude oil to the Strategic Petroleum Reserve. When it takes effect July 1 the bill will cause an immediate pullback in the price of oil, as much as $20.

So says energy economist Philip Verleger. His prediction is surprising, given that injections into the reserve are just 60,000 barrels a day–0.3% of U.S. oil consumption. But he notes that much of what’s being hoarded by the government is light, sweet crude from Arabia, Nigeria and the North Sea–the stuff fetching headline prices of $135 a barrel.

The market for high-quality crude is very tight. Of 87 million barrels the world produces daily, only 10 million are light (not too gooey) and sweet (low in sulfur). That’s why oil prices spiked this year when saboteurs knocked 130,000 barrels a day of Nigeria’s Bonny Light off-line.

Verleger is extreme but not alone in his view of what federal hoarding is doing to oil prices. In a Nov. 29, 2004 column in forbes, Johns Hopkins economist Steve H. Hanke estimated that the reserve was adding $10 to the price of oil ($55 at the time).

Comments

[Harus:]

10% ethanol gas is the real driver of high oil price. I own two vehicles. The week 10% ethanol gas was instituted my mpg dropped 10% in both vehicles. (I keep track of my mpg for 20 years)


It takes a gallon gas to produce a gallon corn ethanol. Ethanol has only 70% of the energy of gasoline. When you mix it in your gasoline. You get zero.

2008 Jun 05 09:38 PM

[LoveShorting:]

Ron: I hope you're right (I am piling on DUG today after 9% drop yesterday). Can't wait for July first.
Harus: Interesting and equally encouraging. I have made money shorting both VSE and AVR and consider both MORAL VICTORIES.

2008 Jun 06 09:07 AM

[Shaggieman:]

I am buying DUG and refiners so I must really like pain. I like to making out of favor value investments and wait until the market comes around.

2008 Jun 06 12:49 PM

[farmerfloyd:]

I have a 93 Integra GSR, the fast 4 cyl, that was in the fast and furious Movie. Super engine turns 8,000 rpm stock.
Ona recent trip I filled up with 10% ethanol at Hess here in
Brooksville Fl. only station around with ethanol and got 28.3 MPG. I always get 31.5. I gassed up in Georgia at a cheap gas and next tank right back to normal with 31.3. That is 3
miles on 28.3 Bit more then 10%. Waste of money to buy plus all the gov waste. water for corn, BS. Cars dont like it with all the water in it, hoses metals etc. Sick thinking
Bush. Just like GM or Ford no research or development like
Toyoto or Honda, Who supplies the engines for our Indy Race. HONDA No one wants to compete, Where did Cosworth and Elmore (GM) .go? Even toyoto went home.

2008 Jun 07 07:46 PM