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Raymond J. Learsy Headshot

George W. Bush as Marie Antoinette, "Let Them Go Ice Fishing In Maine" (Part One)

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With winter's falling temperatures millions of American households are having their budgets devastated and residing in near freezing homes because of heating oil prices they can no longer afford. This while we have an administration and a Department of Energy (DOE) oblivious in action and deed, nay even supportive of the sky-high price of oil leading to these exorbitant levels for fuel and gasoline.

Let me try to explain. The administration wants us to believe a fiction self serving to themselves, their friends in the oil industry here and abroad and especially effective in placating the American public. That fiction, simply stated, is that the oil market, and today's lofty prices are a reflection of supply and demand, freely determined, freely set. It is a fiction that permits them to sit idly by as prices continue to escalate deflecting all blame and responsibility. Fully understood, it is a glaring example of this president's stubborn and one dimensional thinking, and that of an administration that has brought so much grief to the nation.

The oil market is not a free market. Its supply and price is determined in the near term by the willingness of the Organization of Oil Exporting Countries (OPEC) cartel, supplier of 40% of the world's oil needs, to actually deliver that oil to world consumers.

All other arguments (no matter their merits or otherwise) such as peak oil, production constraints, increasing world demand, political disruption, continuing on to stormy weather, have had little to do with this year's exploding price movements other than providing convenient cover for an unprecedented upward march in oil prices from $49.90/bbl in mid January this year to $99.29/bbl on November 21. What has impacted the price of oil is OPEC's decision to cut its daily supply of oil to world markets by 1.7 million barrels a day effective beginning earlier this year. Of this programmed cut only 500,000 barrels/day were reinstated this fall and that with prices already well into the nineties.

Consider the following. This nation is sitting on a stockpile of some 700 million barrels of oil called the Strategic Petroleum Reserve. These 700 million barrels have been purchased and are being stored at the expense of the national treasury, to be used in the national interest, that is to say our interest, yours and mine. The key to this vast store of oil is held by the President (an ex oil man, but perhaps one might gainfully argue still more oilman than presidential), the Vice President (among the oil industry's biggest boosters) and the DOE.

This administration has held that the SPR is to be used in case of emergencies and disruption of supply. Their gospel purports that the SPR is not to be used in any way that interferes with the free workings of the marketplace by, as example, releasing reserves to lower the price of oil. That of course begs the question: what is a free working marketplace? And within what parameters are decisions made to release or forestall access to the oil in the SPR. Does not OPEC's calculated holding back 1.7 million barrels of oil a day from the marketplace qualify as a significant disruption in supply? Should the SPR be used to counter market manipulation, whether through restraint of supply or in the commodity pits? What constitutes an emergency? Is it acts of force majeure crippling supply or purposeful distortions (viz. OPEC's actions) that risk catapulting price and in turn imploding the economy? Or both? Or all?

In its one-dimensional policies predicated on the stubborn mantra that the oil market is freely traded and working, the administration has unwittingly or malignly or perhaps even stupidly helped prop up ever-rising prices. In effect what the administration has done is have us pay for the SPR oil twice. First when the oil is purchased for the Reserve, and then through a glaring lack of responsiveness to programmed distortions, by willfully foregoing the release of calibrated quantities from the SPR that could go a long way toward stabilizing rogue and runaway markets.

More problematic yet is the policy impact, timing and grade allocation of crude oil purchases made by the DOE for delivery to the Reserve...

End Part One

Raymond J. Learsy is the author of the updated version of "Over a Barrel:Breaking Oil's Grip On Our Future"