The Release of Oil Reserves: Another Failed Obama Econ Plan

On August 23, just 9 days ago, trading for domestic crude oil opened up at $94.47 a barrel and was heading south when Obama and the Int'l Energy Agency (IEA) announced the release of 60 million barrels of oil from the Strategic Oil Reserves of 28 countries. Our share of that release was to be 30 of the 60 million barrels.

As of today, the price of oil sits at $94.95 and is now higher than it was before the announcement. Once again, this President and his frat-boy and sorority-girl advisers got it all wrong. They don't seem to understand markets or even simple economics. You "can not" use a "reserve" whose replenishment is mandated by law to drive down prices. Sure, there was a quick price drop for a couple of days but, that was because a few novice traders bailed to protect their profits. However, the smart money simply saw it as another buying opportunity for a commodity that could easily be in short supply if there were any supply disruptions in the Middle East or elsewhere or if the economies of the world perked up again.

The thing is, when releasing oil from the strategic reserves you, in theory, create a "supply" imbalance and, based on the Law of Supply and Demand, prices should go down; and, they did. But, what team Obama completely missed is the fact that, at the same time, you have created a future "demand" imbalance that will completely offset the advantage of that original "supply" imbalance. That's because the amount of oil that was released will have to be bought back to make the reserves whole again. What's worse, because prices are rising, the repurchase will be, more than likely, at a price higher than what the original reserves were sold at; meaning that, once again, Obama has just wasted more tax payers money in another failed economic plan.

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!