Tuesday, February 28, 2012

President Obama and the Strategic Oil Reserve: Politics and Policy

Last summer, for POLITICAL reasons, President Obama released oil from the Strategic Oil Reserve at a truly strange pont. Suyre, gasoline had spiked upwardin price, but the price of oil never even reached as high as it is NOW (as we are not even clsoe to Memorial Day). President Obama ended up releasing oil from the Reserve at a time when the price of oil was only abvout $95 a barrle--an incredibly stupid decision.

It didn't work. You may not remember last summer, but Obama's release of oil from the Strategic Oil Reserve had NO effect on the price of oil or gasolien. The price did eventually go down, but it ALWAYS does at the end of summer (absent things like massive cold spells in teh fall or diisruptons in suppply). The price of both oil and gasoline is now well ABOVE the same time last year. As this blog has told you, the ONLY relevant comparison is this year with the same time last year, and that news has been consistently BAD.

Thus, President Obama FAILED last summer to do anything about the price of gasoline, except make it worse (iwth things like htat moratorium on drilling). Gingrich is absolutely right on this; Obama has a dilemma. His POLICY on energy DEMANDS that the price of oil and gasoline GO UP . No matter what Obama says, as Liar-in-Chief, everyone knows that he is AGAINST actually making an effort to produce MORE OIL. I know that Obama "claims cerdit" for increased oil productin, but that is absurd. Obama himself has OPPOSED oil drilling on ththe gorounds that new oil sources cannot be brought "on line' for 5 or 7 years, or whatever number he feels like using. Any "increased" oil productin is the result of twon thnings;

1. When the price goes lup, wells and fields that were no longer economic to produce become economic again, and more oil gets produced from EXISTING wells (nothing to do with Obama).

2. Oil goes into productin from well projects started years ago. Thus, Obama's INTERFERECNCE with efforts to increase oil productinon, and things like blocking the Keystone pipeline, will hurt U.S. production for YEARS to come. And it will get worse, if Obama gets re-elected, as he really does not--as an idological matter--WANT more oil production.

That leaves Obama with a problem There is nothing he WANTS to do to realy increase American oil production. Even if this were not true, nothign he could do would be effective this summer (althogh the psychological effect on the price is underestimated). If peole KNOW that mroe oil will be producted in the future, they are more willing to sell as much as they can NOW because they feel the price will be lower later. Obama has had exactly the opposite effect. This is true even of OPEC, which would beging to worry if the U.S were makng a major push to add to oil production.

Since, however, there is nothing Obama is willig to do, and not that much he can do for this summer (which was nOT true at the time he was electted, and over the previus 3 years), I PREDICT that President Obama will again release oil from the Strategic Oil Reserve this summer FOR POLITICAL REASONS. That, of course, is a perversion of the purpose of the Strategic Oil REserve, as it was last summer. The Strategic Oil Reserve is stehre to deal with an EMERGENCY disruption of supply--not to manipulate th eprice (which last summer showed is not that easy to do). I have confidence in our Presdient. I think it is certain he will be willing to seell out our country this ummer for his own political gain.

"Wait a second, Skip< I remember that you criticized President Bush for continuing to BUY oil for the Strategic OIl Resrve as oil was siking in price to $120 a barrel and above.' Right you are, and I faovr a consistent POLICY on the Strategic Oil Reserve: BUY LOW AND SELL HIGH.

What is the difference between me and Obama? I am not propsing a "knee jerK POOLITICAL reactin, but a consistent policy to try to reduce the COST of the Strategic Oil Reserve, and build it up. And I don't propose doing this to manipulate/control the price. That is a loser's game. What I would do is simple. I would USE 10% of the Strategic Oil REserve as a FLOAT to IMPROVWE the positin of the REserve, and reuce our cost. Thus, I would actually pass a law that the Presdient MUST start selling oil out of the Reserve when the price of a barrel of oil (that tyope of oil quoted on the NYMEX) goes above $110 a barrel (which it never did last summer), and with NO authority to sell oil below $105 dollars a barrlel from the Reserve. Then REQUIRE the Preisdent to REPURCHASE the oil if and when the pice goes below $70 a barrel. That would include authority to ADD to the Reserve as the pirce goes lower. IF we had done that, in 20009, we could have BOUGHT oil for the Reerve (expanding the Reserve) at as low as $35 a barrel, and now SOLD some of that oil at $110 a barrel (it loooks like). By low and sell high. The idea is NOT to manipulate price although yo can see this POLICY would have a possible benefit of reducing speculation. The idea is simply to keep expanding the Reserve, using only f10% of the Reerve, by essentially HEDGING against both rises and falls in the price of oil. You could adjust the details, but you should get the idea. It is insane, especailly when a military acitn ispossible in Iran, or BY IRAN, to takeacitn with regard to the Reserve for POLITICAL reasons. Teh eletin of Barack Obama is just not that important, except to him. But if we set down a definite policy to ADD to the REserve over time, but not at additonal cost (instead, actually MAKING money), that would have the potential of major benefits. It is only a mnor "benefit" that SOME of the speculation would be diriven out of the oil market as these top and btoom "limits" were about to be reached. AGain, this would NOT "contgrol" teh price. It would jsut be a mnor aid in stabilizing the market, with the main purpose of HLEPNG expand the Reserve without cost.

It would have workedd (in 2008 and 2009, and now). Would it always "wrok"? Of coure not. IF we follow Obama's policies and don't expand our production of oil, we will eventually face a SUPPLY/DMAND imbalance that will cause the price of oil to go up PERMANENTLY. However, in that case all we will have "lsot" is 10% of the Reserve, and we are in big trouble anyway. Or maybe some REAL "alternative" fuel will be developed which can COMPETE in price with oil (does not now exist). In taht case, the price of oil might permanently DROP. In the meantime, I see no reason not to PLAY with the flucctuations with a MINOR part of the Reerve to try to STREENGTHEN the Reserve.

You don't like the idea of ' "specualting" with the Strategic Oil REserve? Well, I don't regard this as "speculation", but--as stated---as a kind of hhedge attmepting to expand the Reeerve without cost to the taxpayers (over time) . However, I agre with you that thisis a DNGEROUS toy to give POLITICIANS. Would hthey have the discipline to only do this kind of thing with 10% of the Reserve, and to follow the DISCIPLINE of buyig low and selling high? I undrstand your skepticis here, and I am not sure myself that I trust the politicians to follow through on thsi good idea.

But look how BAD Obama and the politicians actually are. To them, the Strategic Oil Reserve is a an irresistible TOY to play with for POLITICAL resons (not some ratinal, consistent policy of enhancing the Reserve). The inevitabel result of this is that somone like Preisdent Obama is almost SURE to "use" the Reerve for POLITICAL GAIN (at risk to the country). What is the only "saving grace" here? Right. If the Middle East/Iran blow up BEFORE Obama can tap into the Reserve for his re-elecitn, then we may be "saved" (lol). In other words, we seem to be in a race as to whether we will SQUANDEWR the Reserve for political reasons before we NEED it for national security/total disruptin of supply reasons.

Oh, did you now that there is ENOUGH oil in the world? There is. It is POLICY that is killing us, including the inflationary policy of "Bailout Ben" Bernanke at the Federal REserve. We should have dreilled in ANWR a decade ago If we had takne this problem seriously, without complicating it with the RELIGION of "gloabl warmign", we would be in pretty good shape now. And Bernanke's attempt to INFLATE our way out of trouble may yet DESTROY us on that fromnt (the pirce of oil being only one conseauence of that particular idiocy) .

P.S. No proofreading or spell checking (bad eyesight).

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