As oil prices continue to drive higher the greatest fear at this point is what the government might want to try doing about it. 

The latest scheme - or should I say scam - to try to bring relief to the poor energy consumer in an attempt to lower gas prices is a call by Senators and the Congress to stop filling the Strategic Petroleum Reserve. This is oil that is being put away for a specific reason and that is to increase our countries energy security. It is not to be used as a political play toy for politicians that failed to understand and act on our countries energy future when prices were substantially lower. Not only are a host of Democrats endorsing this bad idea but now even some Republicans have jumped on this band wagon. And not just any Republicans but the Republican Nominee for President Sen. John McCain. This comes at a time when more countries are nationalizing oil reserves and the threat to supply is high. Let’s get this straight from the beginning: a strong Strategic Petroleum Reserve actually lowers the price of crude, not raises it.

The SPR acts as a buffer to price and eases concerns in the market that a major oil disruption caused by an emergency situation could shut down the system. In fact one of the reasons oil has gotten as high as it has of late is the concern about insufficient spare production capacity in the world. If the US Strategic Petroleum Reserve were twice the size as it is now, we might not get so nervous about short term disruptions across the globe. This is a fact that politicians don’t get.

The Strategic Petroleum reserve also acts as a deterrent against those who might want to cut off oil supplies for a political purpose. Oil producers are less likely to cut off supplies when they know those supplies can be easily replaced.

To stop filling the SPR at this point would do little to lower prices especially because at this time there is plenty of crude oil in the market. And with refineries running in the mid 80% of capacity, it’s unlikely that unless the oil was sold well below market prices, it's unlikely there would be many takers. Oil has not gone up lately because there is not enough oil in the market but because the dollar has been so weak.

There is also a certain assumption that if the US stops buying oil for the reserve that no one else will buy that oil. This is very naive thinking. Instead of oil going into our reserve it might end up going to China. Oil is a global market and as President Bush points out the amount of oil we are talking about is 0.1% of global demand. That is about the amount you probably spill when your take the gas nozzle out of your car.

The SPR importance to our nation's national security has been highlighted after the attacks of September 11 and hurricane Katrina.  If anything we should double the size of the reserve. And we should expand the reserve to store products as well.  After September 11, President Bush gave a directive to fill the SPR to 700 million barrels at a moderate rate using royalty-in-kind crude oil from U.S. outer continental shelf leases and this was completed on August 27, 2005. The DOE says that when Hurricane Katrina hit the region on August 29, 2005, the resulting emergency loans of 9.8 million barrels and sale of 11 million barrels reduced the inventory to about 680 million barrels.

Politicians also assume they will be able to buy the oil cheaper in the future. I don’t want politicians playing the market with our national security. Remember when Senator John Kerry said he thought we should stop filling the Strategic Petroleum Reserve at the ridiculously high price of $35 a barrel. He said we should wait till prices came back down below $35. We would still be waiting, Senator.

OPEC is talking about an emergency meeting to raise production so stay tuned!

The Wall Street Journal says Venezuelan President Hugo Chavez aided Colombian rebels! Are sanctions in their future? Stay tuned

Check me out on the Fox Business Network! Also call to get your free trial of Alaronenergies! Call me at 800-935-6487 or email me at pflynn@alaron.com to open your trading account!

Buy June crude at 12100 - stop 11950.

Buy June heating oil at 33000 - stop 32700.

Sell June RBOB at 31900 - stop 32100.

Buy June natural gas at 1100 - stop 1070.

Have a GREAT day and weekend!