Thursday, June 23, 2011

IEA To Release Oil From Stategic Reserves: A Cash For Clunkers In Redux

Today, the International Energy Agency (IEA) announced it would release 2 million barrels of oil per day from the strategic reserves in the United States and in 26 other countries for the next 30 days in the hopes that this will bring oil prices down. Well, this commitment of 60 million barrels did actually drive the price of oil down this morning by a strong $8/barrel. But, I think this was an over reaction by the markets and by some speculators trying to protect their profits.

Between the European Union and the United States, the daily consumption of oil is about 32 million barrels. So, this IEA commitment is less than two days worth of actual consumption. Like the Cash For Clunkers program (once floated here in the U.S.) the effects will be short-lived and all the original factors (like the falling dollar and the rapid economic growth in China and India and the potential disruption of Middle East oil) will still be in place after the 30 days is over; and, it is my guess that we will be right back to $100/barrel in short order. Oil pricing is being driven by future supply and demand issues which aren't about to change in the next 30 days. For those who can't seem to under this: It's simple economics, stupid!

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