Government Buying Oil in the Ground

Jennifer A Dlouhy and Sheela Tobben report on plans of the United States government to buy oil that is still in the ground as part of their oil reserves.

THe motive for this move is not that the government feels their reserves may be insufficient at the moment. The motive is that they noted the unfortunate market developments hammering the oil price. They want to take that oil out of the market.

I was interested in hearing that, since this was exactly what I imagined as the solution for the climate change problem in my 2013 novel “Last Week”. I think it is interesting to see this happening in the real world now. Even if the motive is not doing something about climate change, the effect will be the same. It will reduce supply. And it shows that reducing supply is the natural thing to do if you want prices to go up.

This kind of thing is especially interesting for offshore oil drilling. In that case, the oil producer needs to buy the rights to the oil in an auction from the government in the first place. The government would only buy back those rights. And they could of course stop auctioning them in the first place to get the same effect for less effort and money.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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