Hofmeister: Wrong to Tap Oil Reserves

Tuesday, 08 Mar 2011 07:19 AM

By Hiram Reisner

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The former president of Shell Oil says it is a bad idea to tap the nation’s strategic oil reserves and the notion of doing so to impact gasoline prices at the pump is the equivalent of “giving lollipops to angry children to calm them down.”

strategic oil reserves“That’s not the purpose of the Strategic Petroleum Reserve,” John Hofmeister told CNN’s John King this week. “The reserve exists for the event of national emergencies, which would include shortages or outages. And frankly, there is no shortage of oil in the United States today.

“We have record inventories in Cushing, Oklahoma – there are no refineries that I am aware of anywhere in the country that don’t have an ample supply of crude oil,” Hofmeister said. “And the idea of opening the Strategic Petroleum Reserve to impact price is just a non-starter.”

King asked Hofmeister why it is that every time there is a spike in gasoline prices, some politicians push to open the reserves.

“Well, some people like to give lollipops to angry children to calm them down,” said Hofmeister, who now heads Citizens for Affordable Energy.

“They think that might be a way of getting voters to back off because – no question – when elected officials go home today, and they face voters who are paying through the nose for gasoline at the pump, they don’t want to say: ‘Look, it’s our fault, we’re the politicians who refused to drill American oil, we’re the politicians who have refused in the last two Congresses to change our energy policy – we’ll open up the strategic petroleum reserve for you, and make you happy for a few days,” he said. “It’s a nonsense situation.”

Hofmeister said there are a number of reasons gasoline prices have skyrocketed in the past two weeks, which are not limited to the Libyan crisis or other Middle East turmoil.

“Number one: The overall supply-demand situation is clearly tightening,” he said. “Since last August, to the present, global economic growth – including U.S. growth – has led to, not shortages, but tightening, of the supply-demand relationship.

“Secondly, the particular growth in Asia, and the way in which China is contracting for its future oil, instead of wanting to use the global-trading pool, means there is potential [of] future less oil on the trading marketplace,” Hofmeister continued. “And thirdly, the U.S. not wanting to produce its own oil, is a serious, serious problem.

“It’s all complicated now by the turmoil in the Middle East – and frankly, oil hates turmoil,” he said. “And the fact that this turmoil could spread, contagion could set in – and everybody is really worried about what might happen in the Persian Gulf, with respect to Bahrain, Saudi Arabia, Sudan, and so on – that there is this uncertainty that is just feeding spiking.

“It’s irrational, John, but it’s happening.”

King asked if there was a greed factor involved.

“I think we have to worry about two kinds of potential greed plays. One, yes, there is always some level of speculation of people who are going to cut a deal because they can cut a deal,” Hofmeister said. “And that deal is not really necessary. So they're going to tempt a buyer of oil to buy it now.

“Secondly, there are some retail stations that are run by some real knuckleheads that want to raise the price just as fast and as high as they can to get it while they can, taking advantage of the uncertainty,” he said. “I think the long-term implication for the United States is this nation is the number one cause for high global crude oil prices, because of the serious imbalance in our daily consumption, compared to our daily production. No other country has such an imbalance as the United States.”

“We use 20 million barrels a day. We produce seven. We could produce 10, 11, 12 million barrels a day, but we don't,” he continued. “So for us to fail to produce our own crude oil makes us – really we don't have the right – to complain about global prices when we're the main cause of those high global prices.”

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