I’ve been meaning to comment on President Obama’s decision two weeks ago to release 30 million barrels of oil from the Strategic Petroleum Reserve. There is simply no way to understand it other than as a political decision. The reserve has been tapped by presidential order twice before: for 17 million barrels in 1991, on the eve of war in the Persian Gulf (ASIDE: that was in addition to a 4-million-barrel test sale in 1990, which some commentators combine with the 1991 sale), and for 21 million barrels in 2005, in response to Hurricane Katrina’s devastation of the Gulf of Mexico oil industry.
Obama tapped the reserve for 30 million, the largest release ever, and without any current emergency. He cited Libya as the motivating emergency, but the Libyan campaign had been going on for months and oil markets had already adjusted. In fact, oil prices had fallen more than 16% during the preceding two weeks. No, the only emergency is Obama’s own flagging re-election prospects.
ASIDE: Obama was so eager to see the oil released that he waived the Jones Act to allow foreign ships to carry the oil. Recall that he would not wave the Jones Act to allow foreign ships to help clean up the Deepwater Horizon oil spill, but he would allow them to carry oil for sale when his own job was on the line. Priorities.
Obama has also gotten a lesson in economics. We hold oil in the reserve to prevent disruptions in the event of a brief crisis. We don’t have nearly enough oil to affect oil prices over any extended period of time. And that is being borne out in the oil market: crude oil prices have now climbed higher than they were before the release was announced. There was no long-lasting effect on oil prices, but we’re holding 30 million fewer barrels in the event of a real emergency.
POSTSCRIPT: I’ve assumed that the release was for purely political reasons, but it’s possible that I’m insufficiently cynical. Some oil traders suspect that insider trading was involved.
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