Ecology, Environment and Conservation Paper

THE ECONOMICS OF OIL STOCKPILING AND POLICY IMPLICATIONS

Francis D. Udoh

Abstract

An economic stockpile may be developed to serve a number of purposes, namely:the control of cyclical volatility, the decrease of monopoly power within a market, or the elimination of short-term supply disruptions. This study examined the concept of economic oil stockpiling, its benefits and policy implications. On the benefits side, stockpile drawdown during a supply disruption can dampen or forestall oil price increases, and therefore, reduce both the micro and macro-economic external losses related to supply disruptions. Also, the mere existence of a stockpile program can be a deterrent to any attempts to embargo for economic or political gains. While a stockpile policy should be viewed as a dynamic rather than a static problem, its international implication should be addressed and other countries' policies incorporated in any stockpile decision making process.