Wednesday, January 24, 2007
A component of the energy independence plan laid out by President
George W. Bush in his State of the Union address last night could
result in higher oil prices. According to a report today from
Bloomberg News, the president's call to double the nation's Strategic
Petroleum Reserve could put a new "floor" on the prevailing
price in global oil markets.
President Bush again emphasized the theme of reducing America's
dependence on foreign oil in this year's State of the Union address.
In the course of his proposals, he made reference to the need
"to further protect America against severe disruptions to
our oil supply." He therefore called on "Congress to
double the current capacity of the Strategic Petroleum Reserve."
But a report at Bloomberg News suggests this step could lead
to a gain in the price of oil around the world. Bloomberg reporters
Manash Goswami and Hector Forster write that doubling the reserve
"may help to stem a six-month slide in prices as China, India
and South Korea bolster their defenses against shortages as well."
They added, "The U.S. plan "helps puts a floor in the
market," said Antoine Halff, head of energy research at Fimat
USA Inc. in New York. "It creates competition for the same
barrels. It tightens the market on top of the strategic reserve
builds elsewhere such as China.""
Because winter has been mild in much of the country, oil prices
have been low for the past few months.
According to the Department of Energy, the strategic petroleum
reserve, or SPR, was created after the 1973-74 oil crisis. The
2005 Energy Policy Act called for increasing the SPR's storage
capacity to 1 billion barrels of oil. Managed by the Department
of Energy, the SPR oil is stored "in salt caverns...deep
within the massive salt deposits that underlie most of the Texas
and Louisiana coastline."
The system of petroleum reserves in the United States goes back
to 1912 when the Naval Petroleum and Oil Shale Reserves were first
established. One such reserve, at the Teapot Dome in Wyoming,
was involved in a massive scandal during the administration of
President Warren Harding.