The Strategic Petroleum Reserve Is an Obama '12 Reelection Asset

The American economy, the one that even Democrats admit Obama now owns, is hurtling towards a near depression so fast that the administration will exploit any asset, and embrace any ploy, however desperate, in the hopes the economy will resurrect itself and reflate Obama's plummeting poll numbers at the same time.

The target of choice this week was the Strategic Petroleum Reserve (SPR), an asset supposedly available only for national emergencies.  Obama's incompetent Energy Secretary (and fellow Nobelist) Steven Chu announced the release of 30 million barrels of crude over the next month from the Strategic Petroleum Reserve, this way:

We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery.

Just like Obama's war in Libya, the release of from the SPR is part of a concerted international effort, with other countries contributing a matching 30 million barrels.

With oil having dropped in price by 20% since its high in early May, based on slowing worldwide economic growth and more than ample supply, why attack oil prices now?  With the world awash in oil why now?  Where was the Obama team two months ago, when the national average reached nearly $4 per gallon?

If Libya were the proximate cause of our supply deficit, the solution is simple: end the war in Libya.  If supply of energy is our problem, create more supply by streamlining Gulf of Mexico permitting and opening up Alaskan reserves for exploration and production.  If domestic sources in the lower 48 could ameliorate energy price pressures, then make sure the EPA doesn't scuttle the fracking process that liberates hydrocarbons so effectively in the Bakken formation in the upper Midwest and elsewhere.

Libya was the excuse, but Obama's multi-front economic failures and sagging popularity were the real reasons behind the recent SPR-draining policy announcement.  Obama's post-bin Laden execution bounce has long since faded and Obama's poll numbers are just dreadful.  Only 30% of the electorate will definitely vote for him.  He has run out of auto companies to nationalize and Republicans will not open another trillion-dollar stimulus spigot to help him keep public union members employed.  He admits how preposterous it was to ever believe in a shovel-ready job.

Even Ben Bernanke's infinitely compliant money-printing machine at the Federal Reserve has temporarily stalled, and the Fed chairman seems dumbfounded that nothing he has tried has worked.  Like Obama's poll numbers, most of the government's forecasts are being revised downwards, except for inflation whose rise we are assured is "transitory."

But in a bow to reality, at least Bernanke has finally admitted to the existence of inflation, much of it caused by high energy prices.  And so Obama acts and attempts through government fiat to lower energy prices that might spur consumer spending and lower business costs.

How wide open will Obama leave the SPR tap, and for how long?  When there are elections to be contested, who cares if a vital national resource becomes depleted when a real emergency develops?

Hurricane season is upon us and oil supply could be closed off for long periods as Katrina has proven.  If Libya, whose output  represents 1.6% of world's production, has so shaken the world, what will happen if the increasingly unpredictable Arab spring locks in Saudi production, representing 9.5% of global production?  And what if the Iranian madmen decide to choke off oil shipments from the Persian Gulf at Hormuz through which 20% of global supply traverses?  Shouldn't we have our precious SPR available to us for those contingencies?

Obama's SPR release had its short-term effect with prices dramatically falling by $4 per barrel.  Interestingly, Obama's "1 million barrel per day" SPR promise represents just 5% of US daily demand.  We are usually told by Obama and his green thugs that it's pointless to open Alaska and other federal lands to oil production because any given field contributes just a small amount of extra oil and that such small amounts would have minimal effects on prices. 

The added SPR jolt shows how fallacious those arguments are and how clueless the Obama energy team is about oil markets.  If the market knows that new, incremental, long-term supply is coming on line -- and commodities are always priced at the margin -- long-term futures will discount those prices and those reductions will spill over into current prices.  Every additional barrel we can bring to market matters, but the supply has to be predictable.

Obama's short-term, heavy-handed government intervention will eventually fail as have all of his other interventions in free markets.  Like every committed statist Obama uses government to solve a problem that was caused by government.  Tapping the SPR is just rearranging the deck chairs on Obama's economic Titanic.  But in Obama's case he is the one who created the icebergs.

Claude can be reached at csandroff@gmail.com.

The American economy, the one that even Democrats admit Obama now owns, is hurtling towards a near depression so fast that the administration will exploit any asset, and embrace any ploy, however desperate, in the hopes the economy will resurrect itself and reflate Obama's plummeting poll numbers at the same time.

The target of choice this week was the Strategic Petroleum Reserve (SPR), an asset supposedly available only for national emergencies.  Obama's incompetent Energy Secretary (and fellow Nobelist) Steven Chu announced the release of 30 million barrels of crude over the next month from the Strategic Petroleum Reserve, this way:

We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery.

Just like Obama's war in Libya, the release of from the SPR is part of a concerted international effort, with other countries contributing a matching 30 million barrels.

With oil having dropped in price by 20% since its high in early May, based on slowing worldwide economic growth and more than ample supply, why attack oil prices now?  With the world awash in oil why now?  Where was the Obama team two months ago, when the national average reached nearly $4 per gallon?

If Libya were the proximate cause of our supply deficit, the solution is simple: end the war in Libya.  If supply of energy is our problem, create more supply by streamlining Gulf of Mexico permitting and opening up Alaskan reserves for exploration and production.  If domestic sources in the lower 48 could ameliorate energy price pressures, then make sure the EPA doesn't scuttle the fracking process that liberates hydrocarbons so effectively in the Bakken formation in the upper Midwest and elsewhere.

Libya was the excuse, but Obama's multi-front economic failures and sagging popularity were the real reasons behind the recent SPR-draining policy announcement.  Obama's post-bin Laden execution bounce has long since faded and Obama's poll numbers are just dreadful.  Only 30% of the electorate will definitely vote for him.  He has run out of auto companies to nationalize and Republicans will not open another trillion-dollar stimulus spigot to help him keep public union members employed.  He admits how preposterous it was to ever believe in a shovel-ready job.

Even Ben Bernanke's infinitely compliant money-printing machine at the Federal Reserve has temporarily stalled, and the Fed chairman seems dumbfounded that nothing he has tried has worked.  Like Obama's poll numbers, most of the government's forecasts are being revised downwards, except for inflation whose rise we are assured is "transitory."

But in a bow to reality, at least Bernanke has finally admitted to the existence of inflation, much of it caused by high energy prices.  And so Obama acts and attempts through government fiat to lower energy prices that might spur consumer spending and lower business costs.

How wide open will Obama leave the SPR tap, and for how long?  When there are elections to be contested, who cares if a vital national resource becomes depleted when a real emergency develops?

Hurricane season is upon us and oil supply could be closed off for long periods as Katrina has proven.  If Libya, whose output  represents 1.6% of world's production, has so shaken the world, what will happen if the increasingly unpredictable Arab spring locks in Saudi production, representing 9.5% of global production?  And what if the Iranian madmen decide to choke off oil shipments from the Persian Gulf at Hormuz through which 20% of global supply traverses?  Shouldn't we have our precious SPR available to us for those contingencies?

Obama's SPR release had its short-term effect with prices dramatically falling by $4 per barrel.  Interestingly, Obama's "1 million barrel per day" SPR promise represents just 5% of US daily demand.  We are usually told by Obama and his green thugs that it's pointless to open Alaska and other federal lands to oil production because any given field contributes just a small amount of extra oil and that such small amounts would have minimal effects on prices. 

The added SPR jolt shows how fallacious those arguments are and how clueless the Obama energy team is about oil markets.  If the market knows that new, incremental, long-term supply is coming on line -- and commodities are always priced at the margin -- long-term futures will discount those prices and those reductions will spill over into current prices.  Every additional barrel we can bring to market matters, but the supply has to be predictable.

Obama's short-term, heavy-handed government intervention will eventually fail as have all of his other interventions in free markets.  Like every committed statist Obama uses government to solve a problem that was caused by government.  Tapping the SPR is just rearranging the deck chairs on Obama's economic Titanic.  But in Obama's case he is the one who created the icebergs.

Claude can be reached at csandroff@gmail.com.

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