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.
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.
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