11-15-07 by dugan
There wasn’t much media notice last week for what seems to me a head-swiveling announcement: Energy Secretary Samuel Bodman said that the government will keep buying crude oil to expand the Strategic Petroleum Reserve. At $90 a barrel? While gasoline prices and heating oil prices are well above $3 a gallon and rising by up to a nickel a day?
Bodman isn’t even buying American: the contracts, for a total of 12.3 million barrels, are going to BP (British), a trading arm of Shell (Dutch) and Sunoco (U.S.-based but only a refining company,which means it’s just getting a middleman cut selling someone else’s oil)
Longer-term futures prices for crude oil these days are below the spot price, so why would the U.S. start buying at an unwarranted, speculation-driven peak? Why take oil off the market right now?
The Associated Press reported that Bodman blamed OPEC and Russia for crude oil prices that recently neared $100 a barrel. Commercial analysts increasingly blame speculative trades for the price spiral. But if Bodman sees a supply shortage, why would he take an ounce off the market?
Bodman also said, "We’re very concerned (about oil prices) because … it’s like an unplanned tax increase on American families." Now that’s a true statement, so why do anything that might make it even a little bit worse? Why not sell a few million gallons instead out of an oil reserve that’s at more than 95% of its 727-million-barrel capacity?
Economist Thomas Henderson had a quirky commentary in the Wall Street Journal Monday, estimating that the sale of two million barrels a day from the reserve would quickly drive down oil prices by about $12 a barrel.
As noted in another Journal piece yesterday on the political fallout of oil prices, New Hampshire is among the states facing a 25% cut from last year in federal heating assistance. Perhaps, in White House economic theory, it’s good to let the Granite State freeze in the dark in order to get that oil reserve full to the brim, to the profit of BP and Shell.