If you look at the price of oil, it has only gone down. In the past 6 months it has gone from the low $50's and is headed straight for the cellar, presently on a downward slide toward $32 a barrel. The last two weeks in particular have been devastating.
***update***
when I say "$32 a barrel", that is the worst case scenario of a price collapse.
Some of you may have read in past months as gas prices soared, how speculators of all sorts were getting into the game. Even mutual funds were getting into the act. Billions upon billions of dollars was being bought up by the speculators from the originating countries, and was being resold in the US for a profit. It was low risk, and almost a guaranteed profit. The down side of all of this is that huge amounts of oil went into storage. Our oil stocks were at more than an adequate level, and yet the price of oil did not fall. This makes me wonder if what we are seeing is in fact an oil bubble.
It also makes me wonder if the Bush policy of filling the Strategic Oil reserve when prices were high was a good policy. Now would have been the perfect time to have started filling that reserve. It brings up the important question of the function of the strategic reserve, should it exist for purely national security reasons, in much the same way it has, as a Cold War artifact, merely updated for the present day. I would argue that we should consider that it also has an economic component that is more important than the national security component. By controlling radical changes in the price of oil, either up, or down we can stabilize the global energy markets. To do that we need to create a body that can influence the flow of energy, much like the Federal reserve does for currency. We can precisely gauge and what is needed for our economy, and buy or sell based on those concerns.
You might ask, why is this important? Well, if we want to fund alternative energy, we need to be able to forecast long term energy prices. We can't invest in a wind, solar, hydrogen or bio-diesel plant, and then have revenues drop below what can sustain them. It makes setting up a permanent, profitable, self sustaining, green energy industry more likely.
It also takes much of the risk out of the oil exploration game, giving oil companies an incentive to look for more oil because they won't risk a sudden downturn in the price of the commodity. It will stabilize employment practices in the energy industry, leading to fewer layoffs when times are bad.
We can also create stronger mechanisms to control the effects of energy supply interruptions. Many foreign governments like China, Japan, the EU and the US are net oil importers, by using our oil reserve we have more leverage over producers, this will help prevent attempts by nations such as Russia, Iran, Saudi Arabia and other nations from taking provocative actions that might inflate, or deflate the price of oil artificially. If for example, Putin decides to manipulate European energy supplies, we can assist them. Such a move would inhibit price manipulation. Those nations would know that the US is in a position to sell oil on a massive scale. We could also influence inflation, by limiting the rises in energy prices, and spreading them over time in order to give industry the breathing room it needs to adjust to the new highs. That, combined with effective tax policy to control demand, could curb the wild gyrations in prices we are seeing.
The final reason we should do this as a nation is that we would be able to buy low and sell high on a massive scale. We would turn a profit. That money could be used to further cushion the effects of an oil shock by purchasing additional storage for the strategic reserve for natural gas as well as oil.