Say Anything Blog

Byron Dorgan, ever the crusader against evil oil companies and their nasty profits (he forgets how many people probably have their retirement investments with companies like Exxon), is complaining about the 70,000 - 80,000 barrels of oil a day we’re putting in the national strategic oil reserve.  He thinks this is having a significant impact on the price of oil.

(WASHINGTON, DC) --- The Department of Energy faced sharp questions at a committee hearing in Washington Tuesday from Senator Byron Dorgan (D-ND), who wants them to stop taking oil off the market and putting it underground in the Strategic Petroleum Reserve.

“At $100 a barrel it makes no sense for the Administration to be putting 70,000 – 80,000 barrels of oil a day underground in the Strategic Petroleum Reserve. That puts upward pressure on both oil prices and gas prices,” Dorgan said. “One of the expert witnesses, who previously testified before the Energy Committee, today estimated that taking oil off the market, especially light sweet crude; these actions have increased the price of oil by as much as $10 a barrel.”

First, let’s keep in mind that oil flows out of the strategic oil reserve as fast as it flows in.  Unless the size of the reserve itself is being expanded, the daily purchases of oil are done to keep the supply up as older oil in it is shipped out.  Much as with any product, the reserves can only be stored for so long and need to be kept fresh.  Thus some of the older reserves are sold to be used in the market while new reserves are purchased to keep the supply at the level mandated by Congress and the President.

This means that the SPR’s impact on the market is essentially neutral.  The Department of Energy lets as much out as is put in unless the overall size of the reserve is being expanded.  But that isn’t happening right now.

Second, let’s also keep in mind that 70,000 barrels of oil is a drop compared to overall US oil consumption.  Our country uses approximately 20 million barrels of oil a day.  Even if that 70,000 barrels of purchased oil didn’t have a neutral impact on the market (as I just explained) it would still represent just 0.35% of overall oil purchases in a day.

For anyone to say that minuscule amount is driving up oil prices as much as $10 a barrel is ludicrous.  If Senator Dorgan was a stupid man I’d just say he’s mistaken, but he’s not a stupid man so there’s nothing to conclude except for the fact that he’s lying to us.

And he’s not even lying to us for a good reason either.  All he’s doing is grandstanding.  He knows people spend a lot of time grumbling about oil prices, so by railing against the SPR he appears to be doing something about those prices.  Even if the thing he’s railing about has no impact on the market prices of oil.