Our federal government in its infinite wisdom yesterday announced it would release 30 million barrels of oil onto the market along with another 30 million barrels being release by other members of the IEA (International Energy Agency). The price of oil dropped by about 5% on the day here and around the world. It is rather ironic that for weeks the news has been filled with stories that there is a glut of oil and that the only reason the prices are as high as they are is due to speculation by some unknown but certainly nefarious persons. Of course in 1929 there were many who tried to blame the market Crash on short sellers who were speculating on a drop in stock prices for the market collapse. News wires have been replete with stories about the excess oil stocks in Cushing, Okla. as proof there is plenty of oil yet the Feds, read White House, felt compelled to release oil from our strategic reserve.
It would do well to remember that the strategic reserve was created as an answer to the Arab oil embargoes of the ’70’s. Its first priority was to make sure our military had access to petroleum stocks in the event of a real national security threat and its next priority was to serve as a cushion in the event of another Arab embargo and lastly to help in the event of a natural or man-made disaster like hurricane Katrina. We don’t have a shortage of petroleum stocks at the moment and there was no disaster. The excuse of the Libyan shortage due to their civil war, or whatever it is, is laughable. This was a political move pure and simple to drive down prices and try to get consumers to quit gripping at least for the summer.
The release was clearly a shot across the bows of the traders in oil and gas that the administration would intervene in the normal markets to manipulate prices whenever it thought it was in their political interests. The shock effect worked for a day and maybe will reduce gas prices for a couple of months. But those that got socked on the jaw will recover after reeling a bit. The facts are that the 60 million barrels is not even a one day supply for the global economy. It is literally the drop in the bucket. It will have and did have a psychological impact. But the price of oil is not controlled by one nation, or even a group of nations (see, OPEC) or the large oil and gas companies. None of them are that big or powerful. If Chavez who controls a lot of oil and sells a great deal to the US could get $200.00 a barrel for oil you know he would in a heart beat. If Chevron and Exxon Mobile really control everything happening in the oil markets then why don’t they do whatever it is conspiracists think they do and get $300.00 per barrel for their oil?
The price of oil is subject to the usual forces of supply and demand like any other commodity and subject to the vicissitudes of daily life on planet earth. There are many moving parts involved and competing interest interacting everyday from governments and individuals wanting the price to go up or down as the case may best. In all this hurly burly the market sorts all this out daily and reaches a price for that day and projected prices in the future when people are required to put money on the barrel head, as it were, to support their belief in any particular price. A government with enough military and security muscle can impose price controls for a while but only a while. China, Iran, Saudi Arabia to mention only a few nations control prices for fuel. How are their economies doing for the average Joe? Would you want to trade places with any of them? Even there they can only control it within their borders because their writ does not run beyond that and the market’s writ rules.
Our strategic reserves has been mis-used and abused by politicians for political reasons. They should be made to pay the political price for attempting to manipulate the market. If Exxon tries to manipulate the market the SEC shows up and starts putting people in jail. We’ve only tapped the strategic reserve like 3 times in almost 40 years and this release is emblematic of the cynical and venal attitude of those in the White House toward the American people. We all want $1.00 gas but at the same time we want thousands to be employed at Exxon or other oil companies making $75,000.00 a year and the oil industry to pump oil so the US and private citizens can collect those royalty checks. We don’t need to have politicians buying votes with our reserves that are intended for true emergencies.
“For Fascism , society is the end, individuals the means, and its whole life consists in using individuals as instruments for its social ends.” A. Rocco, Italian Minister of Justice. www.olcranky.wordpress.com