President Bush is right. The speculative runup in prices that has pushed oil to $40 a barrel and more is utterly unwarranted by the existing or foreseeable realities of supply and demand.
The Persian Gulf crisis has not left the world facing a major shortage of oil. It doesn't even necessarily threaten one. Aware that the market is being driven by a classic panic psychology--pay any price now, because tomorrow the price could be higher still--Bush is trying some psychology of his own, moving to release 5 million barrels of oil from the 590-million barrel strategic reserve. His aim is to remind speculators and nervous consumers alike of the considerable power the reserve provides to help keep the market in balance--and prices from soaring destructively out of control.
That message, though, comes rather late in the day. It should have been forcefully delivered earlier in the gulf crisis, not by drawing down on the reserve--there's no need for that yet--but by reminding the world, repeatedly if need be, of the plain facts about present and future oil supplies. Those facts are not changed by Saddam Hussein's blustering.
The most important fact of all is that the oil lost because of the international boycott of Iraq and occupied Kuwait has already been largely replaced. Saudi Arabia alone will soon have nearly doubled its pre-crisis production to 10 million barrels a day. Venezuela has boosted its output. So have other producers with surplus capacity. The result is that in the final quarter of this year the world will find itself short of only about 1 million barrels a day. Finding ways to do without a million barrels, out of a total demand of around 64 million barrels a day, should be easy. In any event, it's insanity to let such a piddling shortfall dictate the kind of panicky price escalation that has been taking place.
And if there's a war, and an interruption in other oil supplies, what then? Then the United States and Germany and Japan and other industrial countries that together have more than 1 billion barrels of oil in storage can begin releasing it--that, after all, is why these reserves exist--and so keep the world economy from being devastated. That's the reassuring message Bush should have been sending. It's not too late to start right now.