Under recent bipartisan Congressional pressure, led by Jeff Bingaman (D- N. Mex), the US has stopped buying 76,000 barrels of oil per day to add to America's 702 million barrel Strategic Petroleum Reserve.
In taking this decision, the administration was responding to a 97-1 vote in the Senate and an overwhelming vote in the House, based in part on the idea that in a time of rising prices the government shouldn't be contributing to aggregate demand.
Immediately, after the announcement of the suspension of purchases, the price of oil ... continued to rise.
The reality, of course, is that the demand of filling the SPR, at approximately 0.09% of global demand is too small to have a measurable impact on oil prices. Thus, there is no basis for stopping the addition of oil to the SPR now as a result of the current price of oil.
The SPR can be looked at as a form of insurance. In that case, the real question is this: Is the SPR sufficiently large or not?
Currently, the SPR has about 702 million barrels of oil in it, which is enough to fully replace US imports for a period of about 40 days. It is possible to imagine scenarios with a reasonable liklihood of occuring which require more oil than this to be replaced? The answer to this is clearly yes.
The correct way for the government to deal with this is to create a scenario analysis, estimate the needed amount of oil and add a safety margin. That is the amount that should be in the SPR. (I don't know what amount this should be, but it is clear that neither the
The other issue that needs to be considered is peak oil. If peak oil is real, the oil in the SPR will be far more valuable in the future than it is now. Thus, as a society, assuming a constant supply produced, we are better off if the SPR contains more oil.