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Tuesday, June 07, 2005

Economic Genius

On "Arrested Development," one of my favorite TV shows, George Michael Bluth and his cousin Maybe were working in the family banana stand. They needed some money, so Maybe took a dollar out of the cash register. George Michael said "You can't do that! It has to add up!" So Maybe took a banana out of stock and threw it in the trash. "There. Now it adds up." George Michael nodded his head.

You don't have to be much smarter, apparently, to be an "oil analyst." An AP today says that the US Strategic Petroleum Reserve is almost to its capacity of 700 million barrels of oil. The Energy Department has been filling it with roughly 75,000 barrels of oil per day.

Now here's an oil analyst doing his best Maybe impression:
Tim Evans, an oil analyst with IFR Energy Services in New York, argues that the net impact would be a swing of 150,000 barrels a day because demand essentially would fall by 75,000 while the available supply would rise by that amount. "You get double the impact here," he said.
And, of course, AP does its best George Michael Bluth impression:
Even if he's right, that amounts to less than 0.2 percent of the average worldwide demand of about 84 million barrels a day.
Sorry, Tim--you can properly count it as a decline in demand, or by stretching your definitions (actually redefining your point of view), you can see it as an increase in supply. But, unless you work for Enron, you can't do both.

For AP to even quote this moron is absurd; to suggest that he might be right is completely off the charts.

(In case you're experiencing confusion like George Michael did, consider a simpler model: You live in a small town with a corner fruit stand. Ten oranges are delivered to the stand each day, and an old lady down the block always buys two of them. Then she dies. This reduces the demand by two oranges per day, but doesn't directly affect the supply of ten. If it has any effect, it will be indirectly through the interaction of supply and demand, and that will be to reduce the supply.)

Theoretically, I think the Strategic Petroleum Reserve is an excellent idea. It also seems like just about the only area where the Bushies have shown any evidence of planning for the future. Unfortunately, I think they still see themselves in charge during that future, and that 700 million barrels of oil is much more likely to be used for war or some other nefarious purpose than it will be to keep the trains, trucks and ambulances running when the real oil emergency hits. They must have known the fix was in for the 2004 election, because they continued to fill the reserve even as gas prices rose last fall. In October 2000, Al Gore shamefully called for tapping the reserve because of a slight rise in gas prices. That was enough to convince me that his environmentalism wasn't real.