Depleting the Strategic Oil Reserve Is a Bad Idea

In the wake of Hurricane Katrina gasoline prices passed $3.00 a gallon. The rapid rise imposed a serious hardship on the consumers. But market forces played their part. Apparently $3.00 per gallon gasoline is at the threshold of pain. We began to witness conservation efforts by consumers, from carpooling to using public transportation, from moving to more gas-efficient vehicles to changing driving habits.

To combat this trend oil companies reduced oil prices by taking smaller profits and oil-producing cartels increased production. Consequently gasoline prices have dropped to the $2.85 range. Now the Federal government is releasing oil from the Strategic Oil Reserve, and our oil-friendly Federal and State governments are considering suspending Federal and State gasoline taxes to further reduce gasoline prices.

This is completely counterproductive because: One, the reserves will have to be replenished later, probably at higher cost. Two, the lost tax revenue will have to be made up some other way. Three, oil companies will raise prices again, to increase profits. Four, automobile manufacturers will resume producing and promoting gas-guzzlers. Five, consumers will abandon conservation. Why not let market forces work without government intervention? Then suppliers will redouble their efforts to offer sufficient quantities at reasonable prices, while conservation efforts will reduce demand.