A surprise release of 60 million barrels (30 million from the US) pushed crude oil prices down for a little while yesterday.  Already prices are recovering and some think prices will tend higher than they would absent the surprise.  The obvious question is why deplete our Strategic Petroleum Reserve (SPR) when there’s no actual emergency?


The release is 8% of our SPR holdings kept in deep underground storage caverns operated by the Dept. of Energy.   Enough remains to cover 72 days of oil imports, and there’s a like volume in industry and private tanks to cover more than the 90-day safety margin recommended.  This suggests there could be more releases, even without an underlying emergency.  


The International Energy Authority (IEA) claims the release was intended to help offset the 132 million barrel shortfall from Libya.  Although the oil sold into the US market is worth less than $3 billion, a few claim the surprise was intended to be a short-acting stimulus.  Its scale is too small to have a large impact.  Others believe the surprise was intended to shake speculators out of the market (a $4 move can be ruinously expensive).  Cynics might even think it was a political move meant to signal solidarity with summer drivers and remind them there’s an election coming.  


When asked about how this release fits with US Energy Policy in a CNBC interview, Bart Chilton, a Commissioner with the U.S. Commodity Futures Trading Commission was weak in his praise for the 60M barrel initiative, referring to it and other administration initiatives as “thoughtful.”   He opined that our past policy on oil and gas exploration had not been “thoughtful.”  There was heavy hinting that “thoughtful” is a new political code word used to characterize government-guided initiatives, as distinct from thoughtless free market initiatives.   Thoughtful seems to mean “very few domestic exploration permits are issued.”


The release is a creative gesture meant to distract markets and consumers from the weightier problems (9.1% unemployment, runaway spending and debt, 3 wars) that had monopolized recent news.  The release is too small to make a difference, big enough to intimidate commodity speculators, and if there’s no push back it will be repeated.


Alan Daley is a retired businessman living in Florida.  He follows public policy from the consumer’s perspective