6 Reasons Why Oil Is Ready to Drop

Strategic Reserve

I have heard analysts quote statistics saying that if Saudi Arabia were to increase Oil production by 1,000,000 barrels a day that it would drop the price of oil by at least 20-30 Dollars and lower the price of Gasoline by about 65 cents at the pump. As it appears that Saudi Arabia isn't willing to do so I am completely baffled that I have heard no mention of the fact that the United States has 700,000,000 barrels of oil in the strategic reserve that could easily add an additional million barrels of oil per day to the world supply and be used to influence the oil market beneficially for the US Economy. I know the Reserve could not pump out oil indefinately but in the hands of some sort of entity comparable to the Federal Reserve Board this huge reserve of oil could be put to use in the same way that the Fed regulates the money supply to benefit our economy. Perhaps just the threat of the Unites States increasing the world oil supply would induce the Saudis to utilize the additional 2 million barrels per day of production capacity that currently sits idle rather than lose any revenue because we have put oil from the reserve on the market.

I know the reserve is supposed to be used in case of WAR or catastrophe but realistically the Opec Nations are waging Financial Warfare and the reserve should be used to counter their attacks rather than just sit idle in the ground doing nothing. My education is limited to only a BBA in Accounting so I admit that there is a whole lot I don't know about the economics of oil supply and demand but I don't understand why there has been no discussion in the press or by the presidential candidates or by the current administration on the topic of using the strategic reserve blunt the economic damage that $130 Barrel oil is doing to this country.

Is there a law that prevents the Government from selling oil? Are there just too many investors and hedge funds speculating on oil futures who would lose money if we started selling out of the reserve? Is it the big oil companies like Exxon and Chevron who would earn less revenue if the price of oil dropped? Is it something else entirely?

Andrew Carlisle of TX @ May 28, 2008 16:22:16 PM