As anyone with even a modicum of economic intelligence would have known, West Texas Intermediate (WTI) crude is now trading higher than the day Obama authorized the SPR release. ON June 22, WTI traded at approximately $94.96 a barrel. The next day the President ordered the Strategic Petroleum Reserve sale of 30 million barrels of oil. WTI dropped to $90.70. Fantastic!! However, here we are on July 5, 2011 with WTI trading at approximately $96.50, almost a full $1.54 per barrel higher than June 22 and $5.80 per barrel higher than where it traded on June 23 (WTI closing spot prices from the U.S. Energy Information Administration (EIA)). While the wholesale price of gas dropped immediately in the aftermath of the news release, the wholesale price has already moved higher, and is now above the June 22 price per gallon.
The decision to release the oil was not based on sound strategic analysis. The SPR was created primarily to make sure oil was available for strategic military purposes, and secondly, for public use. There was and is not any strategic military need for the oil, and the oil will be sold on open markets to the highest bidder. Will the public benefit in the long run? No. Gas prices may drop as a result, but that will be temporary as we have already seen. The real reason for the oil release is purely political. Obama wanted this Fourth of July holiday to be a travel bonanza, thereby pumping up the economic numbers by showing increased holiday driving and creating a general "feelgood" atmosphere due to somewhat lower fuel prices. As reported earlier today, Americans actually drove 2% less miles this Fourth of July than in 2010. How much lower would it have been if there hadn't been a little added "juice".
No comments:
Post a Comment