« It's not the mayor's job to review BDC contracts | Main | Franchot: I won't bust online premium cigar buyers »

June 23, 2011

Decision to tap oil reserves could backfire on Obama

The decision to tap the strategic petroleum reserve looks based much more on politics than economics. Obama needs to do "something" about the economy to look like he's doing his job. Yesterday the Federal Reserve said it was halting the escalation of monetary stimulus. There is no chance of further fiscal stimulus, and Republicans in Congress are talking about cutting back. So this is Obama's largely symbolic response. Thirty million gallons, barrels, the amount of U.S. reserves to be released, is a teeny portion of the reserve. It's also less than two days' average consumption in the United States. (Heh. 30m gallons REALLy would be teeny.)

Texas crude is down about $4 this morning, perhaps responding more to the symbolism of the administration intervening in the markets than in the substance of a little bit of extra oil for sale. Oil prices were already declining. This isn't what many people believe the petroleum reserve is for. It's widely thought of as being there for true emergencies such as war and severe supply shocks. This isn't as nakedly political as if reserves had bene tapped in summer 2012. Nevertheless, the political overtones could hurt Obama.

Posted by Jay Hancock at 11:56 AM | | Comments (7)
Categories: Energy


how can you say the amount itself is meaningless AND say that the reserves really should only be used in an emergency??

Two days of oil is easily replaceable AND wouldnt help cover that much if there was such an emergency that demanded the reserves tapped!!!!!!!!

i remember people saying to bush tap the reserves when we started having gas prices rise so much - well he is doing it!!! and still we whine smh

Of course this is a desperate political move. It wasn't well thought out and leaves even more uncertainty in the markets.

The only meddling the government should do is to stop regulating the energy markets and get out of the way of coal and oil and nuclear and biofuels and solar and wind. Stop subsidizing green energy projects, let them stand on their own.

The results will be certain, beneficial and predictable. Of course Obama and his socialist buddies will never do this, but rather continue to restrict the markets, subsidize inefficient green projects and the results will also be predictable - Continued economic malaise and inefficient use of scarce resources.

Who edits these? It's 30 million barrels.

while there's no question a political calculation was made in the decision for the spr release (nothing happens without political calculation), the move is mainly designed to scare some of the speculative trading of oil out of the market without going the legislative/regulatory route which a) would take a long time, and b) probably wouldn't happen over the hysterics of congressional republicans, corporatist democrats, and their corporate/lobbyist puppet-masters.

i'm no fan of this president, but this is the ballsiest thing he's done to stand up for Main Street economics. If you don't believe it, just turn on CNBC and listen to the traders hyperventilate and cry like children. the gensler report a few weeks ago started this--that's when prices started to ease; and this is a full-on punch in the sack, which is absolutely beautiful to behold.

now they will have to be replaced at a much higer cost

30 million barrels. purchased for $50 a barrel yields a 1.5 billion dollar profit.
This is more like a short term loan than a "ballsy" move.

I don't think the writer knows what he is talking about. This is being released in conjunction with Europe releasing their own 30 million. Then it must be a political ploy in Norway, Holland, Britain and the rest!!!

If you paid attention to the various articles on this, you would learn 1) Oil prod wordwide 84.4 mil bbls/day - oil consumption 84.2 mil bbls/day. not alot of room there. 2) Lybia's entire production is stopped 1.5 mil bbls/day off market, even the terminals the rebels hold, due to ceratin sanctions and legal mumble-jumble, they cant sell it, and the conflict is at a stalemate and will be for the foreseeable future 3) OPEC just had a meeting and squabble on uping production due to Lybia, and did nothing. Granted they all cheat, but it has a play on the markets.

I am certainly no fan of this president, but there is a lot of things going on here. There is not much to gain or lose accept shut the speculators down.

Also, we can either sell the release ($91/bbl as of today) or, as we have done before "loan" it to companies where by they pay back in kind with an additional bbl premium of some type.

Post a comment

All comments must be approved by the blog author. Please do not resubmit comments if they do not immediately appear. You are not required to use your full name when posting, but you should use a real e-mail address. Comments may be republished in print, but we will not publish your e-mail address. Our full Terms of Service are available here.

Verification (needed to reduce spam):

About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.

Most Recent Comments
Baltimore Sun coverage
Sign up for FREE business alerts
Get free Sun alerts sent to your mobile phone.*
Get free Baltimore Sun mobile alerts
Sign up for Business text alerts

Returning user? Update preferences.
Sign up for more Sun text alerts
*Standard message and data rates apply. Click here for Frequently Asked Questions.
Charm City Current
Stay connected