As oil prices continue to drive higher, the greatest fear at this point is what the government might want to try doing about it.

The latest scheme, or should I say scam, to try and bring relief to the poor energy consumer in an attempt to lower gas prices is a call by Senators and The Congress to stop filling the Strategic Petroleum Reserve (SPR). This is oil that is being put away for a specific reason - and that is to increase our countries energy security. It is not to be used as a political play toy for politicians that failed to understand and act on our countries energy future when prices were substantially lower. Not only are a host of Democrats endorsing this bad idea, but now even some Republicans have jumped on this bandwagon–not just any Republicans but the Republican Nominee for President Sen. John McCain. This comes at a time when more countries are nationalizing oil reserves and the threat to supply is high. Let’s get this straight from the beginning; a strong Strategic Petroleum Reserve actually lowers the price of crude, not raises it.

The SPR acts as a buffer to the price and eases concerns in the market that a major oil disruption caused by an emergency situation could shut down the system. In fact, one of the reasons oil has gotten as high as it has of late is the concern about insufficient spare production capacity in the world. If The US Strategic Petroleum Reserve were twice the size as it is now, we might not get so nervous about short-term disruptions across the globe. This is a fact that politicians don’t get.

The Strategic Petroleum Reserve also acts as a deterrent against those who might want to cut off oil supplies for a political purpose. Oil producers are less likely to cut off supplies when they know those supplies can be easily replaced.

To stop filling the SPR at this point would do little to lower prices especially because at this time there is plenty of crude oil in the market. And with refineries running in the mid 80% of capacity, it’s unlikely that unless the oil was sold well below market prices, it's unlikely there would be many takers. Oil has not gone up lately because there is not enough oil in the market but because the dollar has been so weak.

There is also a certain assumption that if the US stops buying oil for the reserve that no one else will buy that oil-which is very naive thinking. Instead of oil going into our reserve it might end up going to China. Oil is a global market and as President Bush points out the amount of oil we are talking about is 0.1% of global demand. That is about the amount you probably spill when your take the gas nozzle out of your car.

The SPR importance to our nation's national security has been highlighted after the attacks of September 11th, and hurricane Katrina. If anything we should double the size of the reserve. And we should expand the reserve to store products as well. After September 11th, President Bush gave a directive to fill the SPR to 700 million barrels at a moderate rate using royalty-in-kind crude oil from U.S. outer continental shelf leases and this was completed on August 27, 2005. The DOE says that when Hurricane Katrina hit the region on August 29, 2005, the resulting emergency loans of 9.8 million barrels and sale of 11 million barrels reduced the inventory to about 680 million barrels.

Politicians also assume they will be able to buy the oil cheaper in the future. I don’t want politicians playing the market with our national security. Remember when Senator John Kerry said he thought we should stop filling the Strategic Petroleum Reserve at the ridiculously high price of $35 a barrel. He said we should wait till prices came back down below $35. We would still be waiting, Senator.

OPEC is talking about an emergency meeting to raise production so stay tuned!
The Wall Street Journal says Venezuelan President Hugo Chavez aided Colombian rebels! Are sanctions in their future? Stay tuned.
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Check me out on the Fox Business Network! Also call to get your free trial of Alaron Energies! Call me at 800-935-6487 or email me at pflynn@alaron.com to open your trading account!
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It’s happening now. High-energy prices are not reflecting strong economic growth but hampering it.
Now over at the Fox Business Channel Network we have been talking about demand destruction and what that really means. My buddy Jeff Flock had a great idea, he said, “Let’s go out and find some demand destruction and show people exactly what that means. Let’s talk to people and find out.”

We went to the Hinsdale Oasis, which is a gas station/truck stop/food court that extends high over the 294 interstate Illinois toll-way. And it wasn’t too long before we saw the real stories of demand destruction develop right before our very eyes.

One of the very first people that we spoke to was a Chicago area school teacher who had her darling little daughter with her. I asked her if she was mad about high gas prices and she said that high gas prices were literally changing her life. She said that she had to sell her house because she could not afford to buy gas to go to commute to her job. You see she lives in the far southwestern suburbs of Chicago and teaches on the far northwest side. Her husband is also a teacher and the gas prices are making it much harder for them to make ends meet. She said the spike in price is just killing them. Add on top of that the slowing housing market they are having a hard time selling there house which is also part of the root problem that is causing the run-up in price in gas prices and why it is hurting the economy.

As the Fed started to aggressively cut interest rates to solve the housing crisis it sent the dollar tanking and oil soaring. The soaring cost of oil all of a sudden had nothing to do with supply and demand but everything to do with the effects of financial stress on the economic system. The run-up in price was not a natural occurrence but a Fed related event. We are only beginning to see the jolt to the economy.

Like the story of the owners of a family-trucking firm I spoke to at the oasis. They were in the trucking business for thirty years and up until recently things were never better.

Yet what has happen to the cost of diesel in the last few months may force them out of business. In the trucking boom they had expanded their business to 10 trucks and employed at one time 30 drivers. Yet, due to the cost of diesel fuel sold 6 trucks. I asked why and they dais they can’t afford to operate them and sold them back to the dealer for a loss. The fuel made it just too darn expensive.

I spoke to another trucker who drove for a company that had a meeting that very day about conserving fuel because their costs had risen to $50,000 a week and if things didn’t change they might have to lay drivers off.
I spoke to small food service company owners that are being forced to add fuel surcharges that many customers are refusing to pay. Other truckers taking a pay cut because of the cost of fuel, independent truckers putting their rigs up for sale. And that was just the tip of the iceberg and people picked out at random on a busy little stop somewhere over the interstate. Whether you believe it or not demand destruction is happening and if you look around it is happen right before your very eyes.

Natural gas is rocking and is going to be the next hot commodity in the world.

Today’s Financial Times warns that “Russia’s Gasport strengthens its hold on natural gas supplies signing a joint venture with Libya.” The FT says “Industry experts say the idea of a gas cartel which has been backed by several producers remains a distant prospect.” But yesterday’s events showed the extent to which Russia, the worlds biggest gas producer has build ties with other large gas exporters playing a co-coordinating role.

As for the long-term bullish case on natural gas, today’s front page of the Wall Street Journal does a wonderful job of laying out the natural gas long-term case.

In the article titled, “Surge In Natural Gas Price Stoked By New Global Trade,” The Wall Street Journal says that “...prices in the US have risen 93% since late August as power hungry nations like South Korea and Japan compete in a global natural-gas market that scarcely existence a half-decade ago.”
The Global appetite for natural gas has profound implications for the US economy tipping toward a recession and struggling against inflation pressures” A must read!

Have you been watching the Fox Business Network yet? You haven’t! Then what is the matter with you? And I do not want to hear that you don’t get it! Call your cable operator and demand it! Have a super weekend and thanks for all the emails! Call me at 800-935-6487 or email me at pflynn@alaron.com