Stop The Energy Department From Hiking Oil Prices By Reinstituting Purchases For The Strategic Petroleum Reserve

There they go again. The Bush administration's last gasp bonanza for the oil industry. Secretary Bodman and his minions at the Department of Energy could not have even waited the 19 days for the Obama administration to take office in order to permit them to deal with this issue from their perspective.

Barely an opportunity has gone by for this administration not to further enrich the oil industry, or to keep a free market in oil from functioning when there is downward pressure on the price of oil. With its price cascading downwards from $147 a barrel in July to $35/bbl by Christmas, leave it to this administration and its newly recruited ally, Rep. Edward Markey, Chairman of the Select Committee on Energy and Global Warming, to do whatever was in their power to halt the slide in oil prices.

On December 26 the price of oil (WTI) ended the day as quoted on the NYMerc at $37.58/bbl. The Department of Energy was prohibited by law from adding to the SPR through the end of December 2008. With the statutory moratorium coming to an end it became clear that the DOE was ready to gear up purchases once more by preparing to reinstitute purchases to the Strategic Petroleum Reserve. Just the whisper of the DOE's planned action started to move prices. And then, to cover themselves they obtained a blessing from none other than Ed Markey Congressman from Massachusetts who had been a vocal critic of the DOE's policies in the past, and early last year was moved to comment "Many hard working families and individuals here in Boston and across America are spending as much as 10 percent of their total income on gasoline, while the big oil companies... are earning billions while fuel prices are wrecking havoc throughout the country." That was then, yet the now, spurred on by either a sad misreading of the dynamics of the oil market or a highly successful campaign by the overly powerful oil lobby, flies in the face of what was once his clearly expressed outrage at unconscionable oil and product prices, and support for cogent oil policies, taking all the nation's citizens into consideration.

In any case, the day after Markey's very public support (December 30, 2008) of the DOE's planned actions to reactivate SPR purchases, the price of oil jumped by more than $5.00 a barrel (if your counting, that's more than $100 million out of American consumers pockets each day, and day after day). And of course Bingo!, the first business day of the New Year, the first day they were able to do so, once again the Department of Energy made it official, they trumpeted they were going to issue solicitations to purchase oil for the SPR.

And what did that do for the price of oil that until then was on the ropes and flailing badly? Well, between Markey and the DOE's SPR initiative, by close of business on January 2nd the price of oil had its biggest weekly gain since 1986, to $46.34/bbl. And this with some 40 VLCC (very large crude carriers) carrying up to 2,000,000 barrels each, anchored off various ports holding well over 50 million barrels of oil at sea alone. The reason oil is being held in tankers at sea is because there is virtually no independent land storage available. The world is awash in oil. That without the SPR lifeline, the price of oil was primed to cascade ever lower (please remember the price of oil was about $22/bbl when President Bush took office). Yes, there is the issue of Gaza (this all transpired before the land incursion) and the Russian-Ukraine gas imbroglio, but to those dealing with oil on a day to day basis, these were no more pertinent than the forever oil price frights so prevalent and so masterfully orchestrated by the industry's flacks and a hyper press. And certainly not, given all the other exigencies over that period, worthy of the largest weekly jump in prices since 1986!

In essence the SPR, rather than being our oil safety valve, has become a welfare program for the oil industry and one of the nation's most outrageous boondoggles. The last time the SPR was invoked it cost us enormously. In January 2007 President Bush, during his State of the Union Address, announced the doubling of the Strategic Petroleum Reserve. At that moment the price of oil was crumbling, having touched under $50 just a few days before. Bush's announcement gave heart to the oil patch, their friends at OPEC, the oil price speculators, and everyone and anyone who would benefit from higher oil prices. Invoking the doubling of the SPR was the signal that set off the greatest price escalation in oil's commercial history. Barely 18 months later we were to experience $147/bbl, a level that was never dreamed of even in the wildest and most seductive visions of a desert mirage. And stubbornly the DOE continued to fill the SPR irrespective of price and the psychological impulse it sent to the markets (i.e. the US government buying at these prices was tantamount to extending its blessing). It literally took an act of Congress to override the administration in order to get them stop making purchases as from May 2008. Other than releasing small amounts of oil from the Reserve for very limited short term climatic or pipeline disruptions, extortionist high oil prices that were risking a national economic calamity were never adequate cause to tap the SPR in this administration's reckoning. The oil barons would not have been pleased.

It is a scandal, with the nation hurting in so may areas, we are once again dedicating federal funds to the one industry that has benefited shamelessly under the Bush administration. It is past time that the Bush administration and its welfare policies for the oil industry come to an end. It's time to send the hacks at the Department of Energy packing!

Comments

[1will]

We have 3 choices. We can stock the SPR when oil is expensive, we can stock it when oil is cheap or we can fail to put oil in and hope that Russia, Venezuela and all of the OPEC nations will look out for our interests in the future.
We can also hope that Saudi Arabia never has a new government that turns off the tap and drives prices through the roof. Nah....tha­t could never happen. Middle Eastern nations are so peaceful and stable.

[Mildmannered]

with oil prices low it is a good time to replenish the reserves

[Agent420]

Another reason to send some people to jail in Gitmo. If we did we would be doing them a favor. No, Ok, let's just send them to The Hague where world justice will prevail.

[FearlessFreep]

If the price of oil is a third of what it was last summer, now would seem to be right time for filling the SPR. Buy low.

[1will]

Your common sense has no power here.

[rockymountainhigh]

Someone needs to inform Mr. Learsy that the oil that goes into the SPR has almost NO, NADA, ZILCH, ZERO effect on the price of oil. First of all, the amount that we put into the SPR on a daily basis is a fraction of a percent of the oil we use. Second, we don't actually "buy" the oil at market prices. The oil is given to the SPR in lieu of royalties that must be paid by oil companies for drilling in the Gulf of Mexico.

How did someone so clueless get to write an article here?

[Chubbster]

You are overplaying your hand on this one.

[jbatch]

OK. Let's try this one more time, Ray. Low oil prices are bad; high oil prices are good. Here's why.

First, oil will inevitably go up in price again -- you may remember in 1997 oil plunged from the then unprecedented price of $35 dollars a barrel to as low as $10/b, due to the Asian currency crisis. A decrease in demand of only 2% is what caused this drop. Oil is exquisitely sensitive to demand fluctuations. Just before the drop, oil "experts" like Cambridge Energy's Daniel Yergin were predicting $50/barrel oil and more; just after they were projecting cheap oil for decades. In an op-ed in the Washington Post, I correctly forecast that prices would come down and then go back up way beyond what experts were predicting. If you strip away the short-term price fluctuations you are left with this fact -- demand is outpacing supply, and will do so for the long term, absent a major economic dislocation.

Second, if it costs less we'll use more. And that will make the price go up and worse, it will make global warming irreversible.

And that's a bad thing. The only rational oil policy is a policy of high prices and a commitment to using less in the short-term and getting off it in the medium term. That's what will lower prices.

So knock it off, Ray. Whining about high prices is bad policy.

Please stop.

[Agent420]

This post is in contention to be the silliest post ever.

[propitiousmoment]

"the one industry that has benefited shamelessly under the Bush administration"

you forgot the weapons manufacturers and other purveyors of war

[ErnestineBass]

...along with Big Pharma, Big Ag and Big Insurance.

Repubs like everything BIG, even gubmint.

[matk62]

The price of oil and ultimately gasoline is impossible to predict. There are so many variables involved that you could easily make the argument for any one of them every time the price changes. I have begun researching this topic more and have several posts on my blog:

( http://www.pay4rides.com/tag/gas-prices/ )

So while the Strategic Petroleum Reserve is not solely responsible for this recent spike, it is definitely a contributing factor. As individuals, the only thing we can control is demand. So we all need to drive less and continue working toward alternative energy solutions.

[GardenerNorCal]

It's very predictable as long as the interests of big oil are the main concern of our elected officials. Speculation drove it up, and we watch as it happens again. Bush could have used the reserves to prevent this economic mess but he didn't.

Nothing has changed.

[1differentdrummer]

"...if your counting,.­.." ESL?

[RTIII]

Apparently our author, and many commentors here, are clueless about the real purpose of the Strategic Petrolium Reserve.

The reserve is there so that _if_and_wh­en_supplie­s_are_cut_­off,_we_st­ill_have_s­ome_oil._

Its purpose is NOT to try an manipulate the price of oil like some kind of hedge fund. It's not NEARLY large enough for that! Any impact it might have would be quite temporary and therefore very foolhardy.

Leave the reserve alone and quit trying to use it for purposes for which it was not intended and for which it is not suited.
.

[BBackSoon]

I am confused by your comment.

Are you saying that we should never use any of the oil in the SPR except when there is NO Oil coming in, yet continue to fill it up?

I am all for the SPR but it seems to just be a Bushco giveaway. If you stock up on anything you generally try to get a deal. Be it toilet paper or beans. But our government decided that we needed to buy at the time oil was at an all time high. In order to help the citizens of the US they should have stopped topping off the SPR and maybe even threatened to release some Oil. That would have affected the price.

The Bush government has redistributed wealth better than any other government, EVER.

[SolarPowerGuy]

"The Bush government has redistributed wealth better than any other government, EVER."

Redistributed UPWARD, I assume you mean?

[RTIII]

Yes, I'm saying that it's a STRATEGIC asset. It's not intended for people to use to commute to work with, rather, it's to have _something_ to help get us by militarily or at least the wheels of government and whatever 'strategic' uses there may be in an unknown future crisis.

People like surfcitysteven simply don't understand the word "strategic," apparently. -frown-
.

[surfcitysteven]

No, you are wrong. If the oil is cut off, we will not have oil even with the spr. You will not drive, neither will I. Maybe tanks and humvees will be able to roll out onto our streets for another week, but as for you, yourself and your beloved car, you are SOL. It is merely a big "Government Cheese" program for the oil companies. Only we don't get any cheese.

[SamEllison]

Ray I'm hoping Rep Markey can do this right.
The Saudi oil minister is calling for $75/bbl pricing, that's too high.
We need $50/bbl oil to keep the alternative fuel programs going, you know big oil does this to kill the competition, create a glut, put them under. Controlling the price of oil with SPR will take the power and the incentive to use it away from OPEC.
$75/bbl oil makes Hugo, Putey-Pute and the Mullahs too powerful for our own good.

[davedave]

gas/oil tax is the way to promote alt. energy and reduce consumption.

europe does it. they are a civilized group. join the crowd.

try it, you'll like it.

d

[BBackSoon]

Agreed but Europe has extensive public transportation. Many of us would have to drive some distance to get to public transportation and some there is no public transportation. Hugh gas prices would hurt many rural people more than others.

We can thank Standard Oil and GM for our ‘Freedom via Automobile’ lifestyle. Now let me be clear, I love cars, but the times they are a changing.

[jsarets]

I guess Mr. Learsy won't be happy until oil is under $10/bbl and everybody stops investing in conservation and alternatives. I further presume that Mr. Learsy opposes the very existence of anything like the SPR -- or at least the notion of ever filling it.

Look, the price of oil is set by speculation in global financial markets. It will probably go back up over $80 or maybe $100 this summer on oil-intensive infrastructure projects in the stimulus bill if not on geopolitical issues. Perhaps the best thing we can do to "break the oil cartels" is to encourage the dramatic fluctuations in price. These countries can't write a budget if they can't predict whether oil will be $25 or $125, and our economy can't make long-term investments in infrastructure tied to such a volatile commodity.

The Gaza conflict and the icy relationship between the Saudis and Iranian-backed Hamas, exacerbated by Egypt, increases the odds of a broader regional conflict across the Persian Gulf. This is likely to drive speculators back into oil futures. We're not likely to see oil as cheap as it is now anytime soon. So if we have capacity in the SPR, now would be the time to buy.

[BuyLow]

continued.­..
So when that was gone we would have been vulnerable to any catastrophe / war / or other major concern, by his logic or lack there of we wouldn't have had a single drop left to help after the hurricanes. This is the time we should be creating storage and purchasing as much as we can get our hands on, just look at the chinese. Mr. Learsy comments about the 50+ million barrels at sea, and yes I agree that it is causing a downward pressure on price, but get real that is only a 2.5 day supply for the U.S. alone, and about 1.25% of the global strategic reserves -
http://en.wikipedia.org/wiki/Global_strategic_petroleum_reserves
I have only been studying the oil market for about 2 months and already have a much clearer perspective than this guy. Interestingly it was about $125/bbl in mid May 2008 when SPR purchasing stopped, but it was 2 months later when price actually peaked. Yes there was a lot of speculative maneuvering, but there was also a lot of purchasing by the growing Asian markets.

Bottom line always BuyLow, and plan for the future growth, don't let yourself get caught in need when prices are high.

[BobHiggins]

I agree, this manipulation along with all the rest is part of a tightly woven fabric of well organized criminality on a scale beyond anything in my six decades of experience.

I like your work, but please, where can I file a complaint?