Fool's [Black] Gold

The Strategic Petroleum Reserve is (according to conventional wisdom) a valuable tool for protecting our domestic economy from oil shocks due to supply interruptions, political strife, natural disasters, etc.  It was established in the mid-1970's in the wake of the OPEC oil crisis and currently holds around 700 million barrels of sweet, delicious crude oil.

Given current high oil prices and ongoing unrest in oil-producing regions, one would think the SPR would be more vital than ever.  On the contrary, however, the Cato Institute has just published a policy analysis report entitled "The Case against the Strategic Petroleum Reserve" which argues the prorgram is a patently bad deal.

From the abstract:

Absent concrete market failures, government intervention in oil markets is unlikely to enhance economic welfare.

A conservative estimate finds that the SPR has cost taxpayers at least $41.2–$50.8 billion (in 2004 dollars), or $64.64–$79.58 per barrel of oil deposited therein. Accordingly, the "premium" associated with the insurance provided by the SPR is quite high relative to market prices for oil, even during 2005.
...
[T]he costs associated with the SPR have been larger than the benefits thus far.

The SPR insurance policy is unlikely to pay off in the future either. First, major oil supply shocks are much rarer than many observers believe. Second, the executive branch has been unwilling to use the reserve as quickly and robustly as economists recommend. Third, the benefits from a release are almost certainly overstated.

Policymakers should resist calls to increase the size of the reserve and instead sell the oil within the SPR and terminate the program.

In 2001, President Bush stated, "The Strategic Petroleum Reserve is an important element of our Nation's energy security. To maximize long-term protection against oil supply disruptions, I am directing... the Secretary of Energy to fill the SPR up to its 700 million barrel [111,000,000 m³] capacity."

Bush may be an erstwhile oil man, but Cato makes a compelling case for selling off the reserve.  If it helps seal the deal, the President can look forward to a one-time windfall of around $40 billion.  That'd go a long way toward shoring up a short-term budget deficit.

Further: Full text of the Cato report (1mb pdf)