So yesterday we saw an incumbent President turn into a Presidential candidate. It was not the President but the Democratic Presidential candidate Barak Obama, who signed the release of 30 million barrels from the Strategic Petroleum Reserve (SPR). Although oil did fell 6% on the day of the announcement, based on the rate of US oil consumption, the release will be consumed in just one day. Even more important thing to notice is, according to American Automobile Association (AAA), gasoline prices were declining since last 20 days in US, so why the sudden need of releasing oil from the reserve?
White house is saying that the release is intended to be a preemptive move for the upcoming summer driving season, when demand for oil is expected to increase. But oil strategists and even the White House know that any price reduction in oil market because of the release will be temporary. I still have my doubts with the timing of the decision. I know it seems very obvious to be a smart political move but then sometimes in politics candidates have to be, plain blunt.
SPR was created in 1975 after the 1973-74 Arab oil embargo. It can hold up to 725 million barrels, which can fulfill little over a month’s US domestic demand. SPR was created primarily to counter severe supply interruption and its use should be limited to emergency situations. Releasing strategic reserve based on NYMEX & ICE spot crude oil prices doesn’t set a good precedence. Most of the so-called independent federal agencies (NBLR, SEC) lately, have been influenced politically; I suppose SPR is going in the same direction.
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