Smart move, an unequivocable win for the administration, for the economy and for consumers. Now let’s see this kind of aggressive solution to the food speculators, and more of us will breathe easier:
Thursday’s surprise release of 60 million barrels of crude reserves is not about keeping oil consumers well supplied. It’s about chasing oil speculators out of the market. And it seems to be working.
“This is the straw that breaks the camel’s back — this is the tipping point,” said Fadel Gheit, oil analyst for Oppenheimer, a leading investment bank. “The speculators will have to change their positions. Instead of betting on higher prices they have to bet on lower prices.”
In a coordinated move, U.S. and European energy officials announced they would release 60 million barrels of oil from strategic stockpiles over the next month after OPEC failed this month to agree on an increase in production. Those extra OPEC barrels were supposed to replace crude output lost when civil war in Libya shut down production.
“This supply disruption has been underway for some time and its effect has become more pronounced as it has continued,” said the International Energy Agency in a statement. It said expectations were that Libyan production would remain off the market for the rest of 2011. “Greater tightness in the oil market threatens to undermine the fragile global economic recovery,” it said.
But independent analysts said the move was aimed more at bursting the speculative bubble rather than substantially improving market supply. Lowering oil prices further would help boost the weak U.S. economy at a time when both the Fed’s monetary stimulus and the government’s spending stimulus are winding down.
Based on the market’s immediate response, the plan seems to be working. News of the oil release sent gasoline tumbling 14 cents a gallon in the futures markets. That’s the equivalent of about $56 million a day in savings at the gas pump — or about $20 billion a year, according to Peter Beutel, and oil analyst a Cameron Hanover. In New York trading crude oil was down $4.01 to $91.40 a barrel, more than 20 percent below peak levels of $114 hit in early May.