This week President Obama announced he will release 30 million barrels of oil from the U.S. strategic oil reserves. This will supposedly lower gas prices and help the economy grow at a faster pace. The strategic oil reserve was created in the 1970s in reaction to the Middle East oil embargo, and its millions of barrels of oil were meant to be released only for a serious disruption in supplies, not merely to lower high prices. Selling 30 million barrels out of our strategic reserve is a mistake, and will not have a truly major effect on prices. This is merely a political move to look like this administration is trying to lower gas prices.
Selling 30 million barrels of our own oil might lower the prices of gas by as much as 20 cents per gallon in the short term. But it will provide no permanent relief, and the U.S. will just have to buy the oil back to replace its reserves. If the president wanted to provide some true relief, he would suspend the taxes on gasoline.
The price of gas in Quincy right now is about $3.57 a gallon. If the release of our oil reserves lowered the price 20 cents, that would make it about $3.37. Of that $3.57, 18 cents is federal tax. 19 cents of it is state tax. Suspending both taxes until the price of oil dropped would make the price $3.20. That’s not including the 6.25% sales tax Illinois charges, or the .3% underground fuel storage tank tax they also collect. Suspending all the taxes on gasoline would make the price around $3.00 per gallon!
Another option the president has is to allow more drilling. He could lift his de facto moratorium on drilling the Gulf of Mexico. He could allow more drilling in Alaska and in other states with known oil reserves. Wouldn’t it be better if the United States controlled its own oil supply, and had a say in what oil prices would be worldwide? That would be a much better option than releasing a few million barrels from our reserve and hoping the price comes down. But the President is not interested in truly lowering gas prices; he is only interested in the political advantages of looking like he is trying to lower the price of oil.
Oil prices have actually been on the decline recently, even with the disruption of the supplies from Libya. Saudi Arabia has agreed to increase their production to make up for some of that shortfall. There is not really a problem with supply right now. Selling 30 million barrels of oil is not the answer. Suspending taxes even temporarily would help immensely. Increasing domestic supply is a more permanent solution. But the president doesn’t have the option of suspending taxes because of his outrageous spending, and more drilling would upset his voting base. So, releasing the strategic oil reserve will allow him to brag about how much relief he gave the American people at election time, but it will actually provide no permanent relief.