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Is the White House Playing Politics With Oil Again?

June 23rd, 2011
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06.23.2011 original publish date
05.02.2013 minor edits, added numbered [brackets] for easier referencing


Is the White House Playing Politics With Oil Again?

original article written by Net Advisor

WASHINGTON, DC. The White House announced it will release 30 million barrels (bbls) of oil from the U.S. Strategic Oil Reserve. Members of the International Energy Agency (IEA) will also release an additional 30 million barrels of oil over the next… how long? – 30 days. The move is supposed to offset the decrease in oil production from Libya.

“The 28-member International Energy Agency said it would release 2 million barrels a day (bpd), mostly of crude, over an initial 30 days to fill the gap in supplies left by the disruption to Libya’s output.”

— Source: Reuters

The unexpected move sent oil prices plunging about 5.00% along with stocks this morning. The Dow fell over 200 points on the initial news, breaking below 12,000 but managed to recover on unrelated news in Greece.

One might ask about the timing of the Administration’s initiative as the financial markets and the much of media seemed to ignore another economic report that showed U.S. jobless claims rose by 9,000 this week, greater than expected (Source: CNN).

To be fair, part of this down drop in the market might also be contributed to the  jobless claims, however the headlines cite more oil in the marketplace as the big reason for stocks to tank (Source: Reuters).

[1] FED’s Failed Stimulus. Obama’s QE3?
The FED who is ending its latest $600 Billion stimulus program this month, did not stimulate consumer spending as the FED hoped (Source: Bloomberg). The FED said yesterday, despite its failure of “QE2” that it predicts the U.S. economy will recover in the second-half of 2011 (Source: Bloomberg). I’m not in that Kool-aid camp.

The FED gave no reason why the economy should turnaround yesterday. That is like saying, you might win the lottery in the second half of 2011, but have no plans to buy any tickets either. The FED is just “hoping” for an economic turn around. The FED said back in 2007 that it did not expect a recession, also said the recession ended in 2009.

Forbes called the new release of oil reserves as “economic stimulus” or “QE3.” If financial markets tank, it would be difficult to call this “stimulating” to the economy. Retail stocks and airlines generally traded higher on lower oil prices. Lower oil prices are good for consumers but there is a catch. Lower oil does not seem to bode well for stocks. I discussed the current relationship trend between stocks and oil last month. It seems that Governments are trying to manipulate prices in a free global market. This is not likely to work for a long period.

[2] Is There a Global Need For Libyan Oil? – No.
The argument for increasing the oil supply is supposedly to boost the global economy and make up from Libya’s export short-fall (Source: Reuters). This argument is highly suspect.

Here is what we are being told:

“The developed countries took the near unprecedented step Thursday of drawing down their oil reserves to make good the loss of Libyan supply.”

“…a senior US administration official said President Barack Obama “has been deeply concerned” about the disruption to oil supplies which has led to higher prices, dampening economic growth at home and abroad.”

— Source: AFP (PDF)

Here is what we know:

Libya produces less than 1% (one percent) of the world’s oil (Source: The Economist).

According to the U.S. Energy information Administration (EIA), the U.S. imported only 15,688 barrels (bbls) of oil from Libya in 2010; down 49% since 2007.

Source: EIA

WAIT! Did you just say the U.S. has decreased Libyan oil imports by 49% since 2007?

Yes.

In fact, oil imports from Libya have decreased every year since 2007 (Source: EIA).

In contrast, discounting the 15,688 bbls of Libyan oil, the U.S. imported some 1,638,589 bbls of oil from the other OPEC nations, and 1,690,208 bbls of oil from non-OPEC nations (Source: EIA Interactive Chart, 2010)

If one takes a look where the United States gets their oil, Libya is nowhere in the top ranks. The top three countries where U.S. imports oil from is Canada, Mexico, then Saudi Arabia (Source: EIA PDF Report).

Based on the EIA report for 2010, the U.S. imported more than four times as much oil from Norway than we did from Libya (Math: 177 barrels per day (bpd) x 365 days/ year = 64,605 bbls of oil; vs. 15,688 total bbls of oil from Libya in the same year).

— Source: EIA PDF Report, 2010

[3] Is it Really About Libya or is it Election Politics?
Now we know the U.S. and the rest of the world gets very little oil from Libya. So is there an oil shortage? The Los Angeles Times reported that despite Libya’s civil conflict, there is no shortage of oil in the world.

“Despite the absence of Libyan oil, there is no shortage of oil in the world.”

— Source: Los Angeles Times, 06-23-2011

[4] How to Get Oil Prices Lower
If you want oil prices to go lower there are two ways to do this.

1. Reduce deficit spending can increase the value of the U.S. Dollar. As the government increases deficits, that lowers the value to the U.S. Dollar and creates inflation. Oil, like most commodities are priced in dollars. So if the U.S. Dollar declines in value, commodities including oil prices move higher. Thus, if you control deficits and work toward balanced budgets, this can stop that trend and strengthen the Dollar, and in-turn lower oil prices.

2. Increase oil output. The more supply of something on the market, the lower the price. This however is a temporary fix, unless one plans to pump a significant amount of oil on the market everyday for an endless period of time to the point where supply is greater than demand.

What happens next is that oil producers will cut the amount of supply to meet the lower demand, thus stabilizing oil prices. If they cut the oil flow too much and demand exceeds supply, prices go back up. This is why oil prices are so volatile, supply and demand changes –  daily.

[5] What is My Oil Policy This Month?
It is my view that President Obama really wanted much higher oil prices in hope that consumers would start buying more fuel efficient cars as the Administration mandated to the auto manufactures (Source: WhiteHouse.gov PDF).

The Administration wants to reduce dependency on imported oil (Source: Reuters). Don’t “hope” for this to “change”, as every President has said this for the last 40 years.

The problem is the Obama Administration has made the U.S. more dependent on foreign oil by restricting domestic drilling since the 2010 BP Gulf Oil Spill.

“Interior Secretary Ken Salazar announced Wednesday afternoon that the Obama administration will not allow offshore oil drilling in the eastern Gulf of Mexico or off the Atlantic and Pacific coasts as part of the next five-year drilling plan, reversing two key policy changes President Obama announced in late March.”

—Source: Washington Post, 12-01-2010

Then the Administration decided just five months later to offer some new oil leases to increase oil production (Source: MarketWatch, 05-14-2011).

[6] Obama’s thinking on energy might go something like this:

I’m against oil drilling…

Now I’m for oil drilling…

I want oil prices higher so people will buy fuel efficient cars…

The economy is slowing (again), the election is coming. I want oil prices to go down now….

I’m against oil…

I’m for oil…

Which is it?

The Administration clearly has no clue what side of the table they want to sit.

Regardless what policies any President orders, Americans aren’t going out in mass and buy hybrids. This seems to be true no matter how high oil prices seem to go. In fact in 2008, when oil prices hit $143 bbl, that’s $51 bbl higher than they are today, the bestselling vehicles in the USA where still large trucks.

[7] Why is Obama shifting his views on oil?
Did we tell you there is a Presidential election next year?

Several articles suggest higher oil prices could impact Obama’s chances for re-election:

“Rising oil prices could derail Obama’s re-election.”

— Source: Deseret News – a Hearst Publication, 01-23-2011

“High gas prices are correlated with poor incumbent party performance in presidential elections.”

— Source: NPR.org, 03-09-2011

“In re-election terms, 53 percent of those who are feeling serious hardship as a result of gas prices said they would definitely not vote for Obama in 2012.”

— Source: ABC News, 04-25-2011

The Administration needs to understand that they, nor Bush, nor Goldman Sachs, nor anyone else controls a global market. They can temporarily try and influence it, but unless they are going to sell oil futures contracts every day to eternity, oil prices based on a finite supply and unlimited demand, will eventually go higher again.

The Administration needs to focus on its deficit spending problems, and if real government reform happens there, that can help strengthen the dollar, and help keep oil prices a bit more reasonable.

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Related Article:
Obama’s Ideological Energy Polices Costly & Have Not Worked

short link to this article: http://www.netadvisor.org/?p=9770

Image from the White House with parody speech bubble added.

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