On Thursday, Reuters
reported that Britain and the U.S. have reached an agreement to
release oil from the nations’ oil reserves. The report states that
the idea originated with the Obama administration and that “Britain
would respond positively” to a formal request.
The report was immediately
denied by a White House spokesman and
questioned by some oil analysts.
Such a move would be a reprise of a similar failed effort
less than a year ago. However, given
pressure from Democrats and bad
polling for President Obama on fuel prices, the initial report
is easier to believe than the White House’s denial. Indeed, the
denial did not say that this was not a topic for discussion between
Barack Obama and British Prime Minister David Cameron, but simply
that there was no actual agreement.
The burst of activity, including how quickly the
administration had a response ready, had the distinct air of a
“trial balloon,” something that panicky administrations resort to
when out of ideas.
In June 2011, President Obama, desperate to avoid the
political ramifications of high oil and gasoline prices, announced
a release of oil from America’s Strategic Petroleum Reserve. The
release, justified on the basis of the temporary interruption of
Libya’s oil exports, was coordinated with two dozen other nations.
The U.S. released 30 million barrels of oil from its stockpiles,
with other nations matching that amount in the aggregate, for a
total of 60 million barrels of oil put on to the world
market.
For perspective, the world uses about 89 million barrels
of oil per day. Of that amount, nearly 20 million barrels is used
by the U.S., about 14 million by Europe, and about 10 million by
China. So last year’s release sated U.S. demand for 36 hours and
world demand for half that time.
It was only the third time that the SPR
had been tapped, with the first two being in 1991 during the Iraqi
invasion of Kuwait and in 2005 just following Hurricane Katrina’s
damage to the Gulf’s oil production and refining facilities. Obama
now proposes the fourth, with no supply interruptions — other than
those his administration is causing by blocking pipelines and
drilling — to justify the request.
Following news of the June 2011 release, oil briefly fell
about $3 per barrel to $91 in trading on the
NYMEX. In ensuing days, oil prices recovered as the market
realized that the SPR release was a drop in an oily
ocean.
Prior to the Reuters report on Thursday, crude oil had
been trading just below $106 per barrel. The news knocked it down
almost $2 in 5 minutes before recovering two thirds of that drop,
trading back above $105 within 40 minutes of the initial news and
the subsequent White House denial and ending the day down only a
few cents from Wednesday’s closing price.
During an oil price decline during the late summer of 2011
which accompanied a stock-market sell-off amid fears of slower
global economic growth, the SPR did not replace the oil released in
June. Thus, the government sold 30 million barrels of oil in the
low $90s, which is now at least $12 higher, costing taxpayers over
$350 million so far. At least it was a smaller loss than
Solyndra.
If only President Obama were as good a commodity
trader as Hillary Clinton.
SPEAKING OF SPECULATORS, Democrats often blame them for
higher oil prices. To be sure, there is substantial speculator
participation in oil markets. However, as usual for the political
party that believes that people do not react to economic
incentives, Democrats misunderstand capital markets. Speculators
will not be deterred by any short-term policy, such as tapping the
SPR, that does not change the fundamental long-term supply and
demand calculus.
On Wednesday, the head of the International Energy Agency,
Maria van der Hoeven, noted that the supply-demand balance
currently favors higher prices — thus minimizing any suggestion
that speculators are the primary force in current prices — but
that the situation it is not dramatic enough to justify the move a
desperate Obama administration may be calling for: “There is a
tightening market, there is no doubt about that. At this moment
there is no need to use [strategic oil reserves].”
President Obama’s energy policy is schizophrenic at best.
Obama himself, as well as Energy Secretary Steven “I don’t own a
car” Chu, are on record supporting high energy prices as part of
their cultish devotion to “renewable,” which is to say inefficient,
energy sources. Chu offered a refreshing bit of truth when
speaking before a congressional committee on February 28, saying
that lowering fuel costs was not the Energy Department’s goal. And
Obama famously said that his cap-and-trade policy would cause
electricity prices to “necessarily skyrocket” due to
high taxes on coal.
They are birds of a (green) feather, flying into the
political wind turbine of
political reality as their daydreams of minimizing the amount of
plant food, also known as carbon dioxide, in the atmosphere strikes
rational Americans — who do drive their own cars — as economic
masochism.
According to energy author Robert Bryce, the amount of
energy that would be delivered by the Keystone XL pipeline that
Barack Obama just refused (for a second time) to approve would
exceed the energy produced by every wind turbine and every solar
panel in the U.S., combined.
The nation knows who these men really are and what they
really believe, which is why President Obama’s recent squirming on
energy, now that high prices are harming him politically, is not
working with the public. It is why Newt Gingrich, political
viability aside, is making energy prices the centerpiece of his
campaign.
Obama commented on oil prices on Thursday following the
Reuters report, coming back to his usual refrain: “There is no such
thing as quick fix when it comes to high gas prices. There is no
silver bullet. Anybody who tells you otherwise isn’t really looking
for a solution. They’re trying to ride the political wave of the
moment.”
The president’s argument is a straw man. Nobody is saying
there is a quick fix. Instead what supporters of increased
exploration and drilling argue is that however long it will take,
it is better to start sooner than later. Furthermore, few things
would take the wind out of speculators’ sails more effectively than
a credible commitment to increasing domestic supplies. This, of
course, is not forthcoming from a president who recently
termed oil “the fuel of the past” and whose first big energy
idea was to hire a “Green Jobs Czar” — the avowed communist
Van Jones.
Trying to ridicule those who call for expanded drilling,
Obama’s ugly, bullying cynicism was apparent on Thursday, as
feeling like he’s losing always brings out the worst in our
thin-skinned president: “There are a few spots where we’re not
drilling. We’re not drilling in the National Mall. We’re not
drilling at your house.”
He added that in addition to drilling, we need to develop
wind power, solar power, and biofuels, as well as make our
buildings, homes, and cars and trucks more fuel efficient. Maybe he
should trot out Steven Chu to suggest again that we all paint our roofs
white.
IT IS A SIGN OF THE BUBBLE Obama lives in that he thinks
such rhetoric will be effective with voters. Americans are now
spending an
average of $3.82 per gallon of gasoline across the nation, up
30 cents from a month ago, with much of the nation suffering
through substantially higher increases. The politically critical
states of
Ohio and
Michigan, for example, are seeing prices up 50 cents from a
month ago.
An oil price increase not only raises the cost of filling
your car, but also the prices of food, plastics, fertilizer, and
anything else that takes energy to produce or transportation to
deliver to market. It is a huge tax on the American economy, with
one website
calculating that “An increase of 10 cents per gallon translates
into an additional burden of $14 billion per year for US
households.”
Reports of the Obama administration looking to reprise
last year’s expensive and ultimately ineffective tapping of the
Strategic Petroleum Reserve show a continued desperation to make a
pretense of caring about higher gas prices. But its record and
rhetoric show a fundamental lack of both understanding and
seriousness.
No action that this president will consider — including
tapping the SPR — will help Obama with the issue of high energy
prices. American voters understand the Obama team well enough to
know that the only reason its members pretend to “feel your pain”
is that they see their political futures going up in expensive
gasoline-fueled flames.
