Monday, May 17, 2004

Some dark sinister conspiracy theory regarding oil prices is being spun over at The Independent (London). Considering how poorly Bush's Saudi rescue strategy is looking, I wouldn't simply shrug this one off.
The US has a Strategic Oil Reserve, which it builds up to protect America against potential shocks, such as the strikes in Venezuela 18 months ago. Since November 2001 the Department of Energy has been buying up 200,000 barrels a day on the open market, while the Federal Reserve is also bolstered by payments in oil which the US receives through certain trade deals.

According to Mr Tinker, the Reserve currently holds 659 million barrels and is contracted to receive another 18 million. At current purchasing rates the Reserve will reach its limit of 700 million barrels by October.

Given that Brent crude was touching $39 a barrel last week and West Texas Intermediate sold at over $41 a barrel, might it be a good idea for Dubya to tell his Energy Secretary, Spencer Abraham, to stop slurping up all this oil? He shows no sign of doing so.

The cynic in me wonders whether the Republican strategists are waiting for a moment to release some of the reserve. Back in 1991, at the start of the first Gulf War, the President's father, who was then in the White House himself, engineered a near-halving of the oil price by stating he was going to sell 2.5 million barrels a day from the strategic reserve. A similar move could create a pre-election boom and send John Kerry packing.
Indeed, Poppy Bush did arrange to drop some 33 million barrels of strategic reserve oil on the market in January 1991, the first time there was ever an "emergency" oil release from the reserve. In the end only some 17 million barrels were sold, but that was enough to drop prices by over one-third almost immediately.

Now the first Gulf War was a bit more believable an "emergency" than $2/gal. gasoline, but a 42% approval rating is likely the only relevant definition of "emergency" to the current Bush administration.

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