Learning Center
Plans & pricing Sign in
Sign Out

Releasing the Crude


									<div class="KonaBody">
        <p><strong>"Kilometers are shorter than miles. Save gas, take
your next trip<br>in kilometers."Â --George Carlin</strong></p>
<p>In an attempt to stabilize global oil supplies and reduce energy
prices here in the United States the Obama administration is leading an
international effort to release 60 million barrels of crude oil reserves
to world markets.</p>
<p>The 28 member-states of the International Energy Agency (IEA) have
made the decision to release the reserves after several weeks of secret
talks. In addition to the situation in Libya, this action was also
designed to increase the oil supply while lowering prices. The strategy
worked immediately as the spot price of Brent crude fell 4.2% to $108.08
per barrel, while the spot price of West Texas Intermediate (WTI) crude
was reduced 4.6% to close at $90.65 per barrel.</p>
<p>The total amount of oil to be released—60 million barrels over 30
days—is relatively trivial since the world consumes more than 89
million barrels each and every day. The reason for any significance at
all is because half of the 60 million barrels will be drawn from
America's<br>Strategic Petroleum Reserve, a failsafe pool that American
presidents have access to in the face of oil supply disruptions that
threaten either the economy or our nation's security. If the President
goes through with this plan fully, it will only be the third time the
Strategic Petroleum Reserve has been tapped since it was created
following the 1973-1974 Arab oil embargo. The other two instances were
the 1991 Gulf War and Hurricane Katrina in 2005.</p>
<p>Even more important, is the signal it sends to the Organization of
Petroleum Exporting Countries (OPEC) that the world's consumers will not
simply stand by and watch as global economic recovery is threatened by
high oil prices. At a meeting earlier this month, OPEC members failed to
ratify an agreement to increase oil production as a way to replace the
lost production caused by the Libyan crisis. After the meeting however,
Saudi Arabia and the<br>Persian Gulf states split from the rest of OPEC
and agreed to produce up to 1.5<br>million barrels of oil daily until the
end of 2011.</p>
<p>Â Meanwhile, back in America, as the government attempted to explain
its reasons for tapping into our own reserves, U.S. Energy Secretary
Steven Chu said "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." He went on to add "As
we move<br>forward we will continue to monitor the situation and stand
ready to take additional steps if necessary."</p>
<p>Prices were already falling at America's gas pumps during the IEA's
debating of the oil release. The average price of a gallon of regular
fuel has fallen to $3.61 compared with $3.83 in May. Last year at this
time a gallon of gas cost $2.74.The IEA nations involved in the oil
release will review its impact after 30 days as part of an effort to
determine whether<br>additional releases are required.</p>
<p>Energy stock declined broadly at the news of the oil release with most
energy indices falling more than 2%. The IEA announcement was not the
only news of the day however. The US Labor Department also released news
of greater than projected unemployment insurance claims, and the Federal
Reserve lowered its expectations for economic recovery and future
<p>With the economy struggling as it is, some economists maintain that a
decline in oil and equity prices is to be expected. President Bush's
decision to tap the Strategic Petroleum Reserve in 1991 is widely
credited with calming an oil market that was whipping itself into
a<br>frenzy. When Iraq invaded Kuwait on August 16, 1990, the two nations
combined<br>were producing 4.3 million barrels of oil a day. That loss,
combined with threats to Saudi Arabian production, pushed oil prices from
below $18.00 per barrel in July to a peak of $46 that October, an
increase of 155% in just three months.</p>
<p>Most of us remember that fateful day, January 16, 1991, when the U.S.
and its allies launched their first attacks against Baghdad and President
Bush announced that the U.S. would begin releasing oil from its Strategic
Reserve as part of an international effort to minimize world oil market
disruptions. Within three months, the Gulf War was over and the price
fell back to between $18.00 and $19.00 per barrel.</p>
<p>There is no doubt that some of you may be asking the question: Why
now? The war in Libya has been raging since the middle of March and as
mentioned above, Saudi Arabia and other Persian Gulf states have decided
to increase their production to take up the slack. High gas prices have
taken a big bite out of President Obama's popularity so you may be
thinking<br>this latest move is more about getting re-elected than some
strategic decision to tap America's oil reserves.</p>
<p>The reality is that no matter what you and I think, it is happening
and if nothing else, it is another reminder that American oil reserves
are near record highs. Together, the Strategic Reserve and America's
commercial stockpiles currently hold approximately 1 billion barrels of
crude oil, compared to an average of 900 million barrels since 1982. The
nation has a<br>lot of oil on hand in case of an emergency which should
discourage any oil company's attempt to cause any artificial price
<p>Another reality, and one that is more sobering, is that the United
States government has released some very disappointing economic data over
the past few weeks. Europe is not doing much better with countries like
Greece on the verge of total economic collapse. The so-called "Arab
Spring" despite its absence from today's headlines, is also still very
much alive and is being driven by continued protests in Syria whose
heroic citizens by their<br>example are fanning the flame of democracy
throughout other Middle Eastern states. For once, uncertainty in the
Middle East is not a concept made up by American oil companies—it is a
<p>Finance Magazine recently stated that "The global oil machine is a
complex beast, but at its heart is simple supply and demand." While that
observation left out the issue of greed, this new release of oil from
America's reserves will add supply in a definitive way which will
result<br>in lower prices at the pump—at least for now.</p>
<p>Who said this is easy?</p>
<p>Â </p>
<p>Â </p>
<p>Â </p>
<p>Â </p>
<p>Â </p>        <!--INFOLINKS_OFF-->

To top