In conjunction with other measures to protect the U.S. from crude oil price shocks such as promoting alternative fuel research and production, President Bush has announced an expansion of the U.S. Strategic Petroleum Reserves. The reserves, which were established in 1975 following the Arab oil embargo, are assets designed to limit the effects of severe supply disruption.

Currently the Strategic Petroleum Reserves hold around 691 million barrels of crude oil, which equates to approximately 55 days of net imports. This is to be expanded to 1.5 billion barrels, or approximately 97 day supply of net import, over the next two decades. The reserves were recently used in the aftermath of Hurricanes Katrina and Rita to supply the U.S. while Gulf of Mexico oil facilities were patched up and brought back on-line.

Analysis: I would argue that the fastest way to increase the relative value of the reserves is to rapidly increase fuel economy. Vehicle taxes linked to official mpg ratings and a healthy cash injection into lightweight composite body panel manufacturing capacity would be a lot less expensive than buying up 809 million barrels of oil as well.

[Source: Department of Energy]

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