President Obama announced last Thursday that the U.S. and other industrialized nations will be tapping into crude oil reserves in order to stimulate the suffering global economy.
Sixty million barrels will be introduced to the global energy market over the next 30 days, half of which will be supplied from the U.S. Strategic Petroleum Reserves. The sum represents the largest single release of reserve oil in U.S. history.
“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. As we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary,” said U.S. Energy Secretary Steven Chu.
The international infusion is intended to drive down the price of gasoline at the pump during the summer’s peak tourist and travel season.
The Los Angeles Times reported that “on Wall Street, shares of airlines, retailers and other companies that would benefit from higher consumer spending finished the day higher on hopes that cheaper fuel will boost consumption by Americans who have been pinching pennies so they can afford to fill up their gas tanks.”
Indeed, news of the stimulus initially sunk the price of crude oil more than $4 per barrel to $91.02 on the global market.
The dip represents the lowest prices seen since mid-February, after which the market witnessed a price surge to $113 per barrel of crude oil as a result of disruptions to international business following the natural disasters in Japan and the ongoing political, war-time crisis in Libya.
The situation in Libya alone has knocked out 1.5 million barrels of crude oil per day from the global supply market. While the international infusion of reserve oil will more than cover this loss with an extra 2 million barrels daily, LA Times reporters Neela Banerjee and Walter Hamilton make the point that the total infusion of 60 million barrels amounts to less than one day’s worth of oil consumption worldwide.
Sixty million barrels is also less oil than the U.S. consumes in two days or imports in three days.
Moreover, CNNMoney reported that “oil prices have surged in the last few days and are now less than a dollar from where they were when President Obama made the controversial decision to tap the nation’s strategic reserve last Thursday.
“On Thursday, West Texas Intermediate crude edged lower to $94.27 a barrel. But that’s still nearly $5 higher than last week, when prices fell over 4% following the oil release announcement.”
Many economists are criticizing Obama’s controversial decision, likening the move to putting a Band-Aid on a bullet wound in “an act of desperation.”
Yet, “the Obama administration must fight the perception that the economy is swinging back and forth with no real gain, and that there’s nothing on the horizon to improve the outlook.”
Some political analysts sense the news is an indication that U.S. policymakers are simply running out of ideas for resuscitating the economy.
The LA Times called the decision a “rare action [that] underscores the challenge posed by the weakening recovery.”
Since the Strategic Petroleum Reserves were instituted nearly forty years ago after the OPEC oil embargo that spiked oil prices to historic levels, the reserves have been tapped into occasionally, though typically in emergency situations, such as after devastating hurricanes.
The reserves were last tapped into in 2008 after Hurricane Gustav came ashore and over 5 million barrels of crude oil were exchanged from the reserve supply.
Prior to the recent release of 30 million barrels to the International Energy Agency, the U.S. reserves totaled over 726 million barrels stored along the Texas and Louisiana coastlines.
Optimists in Washington believe the added supply will bolster the economy by encouraging travel and tourism during the peak summer season with lower gas prices. They also believe the current economic slowdown is the result of temporary factors and are expecting a rebound in the second half of 2011.
If oil prices remain below $95 per barrel with the injection to the supply market, prices at the pump could drop nationwide by as much as 50 cents per gallon.
The national average retail price of regular gasoline as of June 27 was $3.57, down from a high of $3.96 on May 16.
Still, the price remains well above June 2010 prices, when the average price for a barrel of crude was $75 and pump prices averaged $2.75 per gallon.
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