The Roles of Public and Private Storage in Managing Oil Import Disruptions

A government storing oil to reduce vulnerability to interruption in foreign supply should recognize the existence of private storage. In fact, public intervention is justified only if some distortion exists in the private market. A price ceiling that the government is unable to eliminate as a possible future policy is such a distortion. We show that public storage can indeed substantially alleviate a price ceiling's adverse effects. Appropriate public storage behavior depends importantly on tariff policy and other policy constraints as well as on private sector responses to current and anticipated public behavior.