The price of oil for West Texas Intermediate Crude (WTI) now sits at over $100 a barrel. WTI is the benchmark for the price of oil traded on the New York Mercantile Exchange (NYMerc) and delivered in the United States with Cushing Oklahoma as the point of delivery. The other benchmark for oil pricing is Brent North Sea Oil traded in world exchanges especially London. Today the quoted price for WTI is $101/bbl while Brent is trading significantly higher at $114/bbl.
The difference reflects a difference in supply in the U.S. domestic market and that of the European and otherwise world markets. We have ample supply of oil in the United States with stocks both commercial and government (the Strategic Petroleum Reserve --'SPR') at or near all time highs.
Yet the events in Libya, more out of fear and distorted trading on the exchanges have pushed the price of oil to levels that are threatening the economic recovery worldwide even though our market is amply supplied. Yet, importantly, because of the current schism in the price of oil (WTI vs Brent) we are in a position to do something about it.
We have a Strategic Petroleum Reserve holding some 750 million barrels of oil -- available to the nation in case of national emergency. The looming economic crises caused by the massive jump in oil prices must certainly be classified a national emergency.
Given that our oil markets are well stocked, it is the traded price of oil that poses the grave economic danger. The government, by systematically releasing 200,000 to 300,000 barrels of oil a day from the STP until the events in Libya are resolved, could break the trading psychology that has overtaken the U.S. oil market and bring down the the price of WTI crude by some $20 to $30 a barrel. It might not impact the price of Brent crude directly but would certainly send a message to the International Energy Agency (IEA) to do likewise in that they control government stocks of 1.4 billion barrels.
Of course the oil industry and most likely the likes of the American Petroleum Institute will marshal their lobbying firepower to forestall such a dynamic initiative by the administration. Such attempts by the oil lobby would once again underline the divergence in priorities and responsibility between the oil interests and the nation's well being. Should that come to pass, perhaps this is the moment to strongly consider the 'Norway solution' and nationalize the oil industry altogether. Certainly in Norway the national patrimony of that nation's oil riches and its administration has benefited that nation making it the envy of much of the world. There is something wrong with our system whereby many Americans are freezing in the cold of winter permitting a given sector of the economy to cash in.