Thursday, April 12, 2012

Lowering gas prices

It never made sense to me, but now it does. I never thought this was the time for the President to open temporarily the spigot of the nation’s strategic petroleum reserve,  the world’s largest supply of emergency crude oil. Although prices were high and getting higher, there didn’t seem to be a real disruption in the oil supply. Speaking to the New England Council on April 11, Congressman Ed Markey made a cogent argument for immediate Presidential action.

According to him, a measured release can help stabilize and reduce prices, minimizing the impact of sky-high rates on our economy. George H.W. Bush released oil from the reserve in 1991 during the first Iraq War, Desert Storm; prices came down 19 percent. George W. Bush did it in 2005 after Hurricane Katrina, also lowering prices. President Obama did it last June to respond to disruptions in Libya. Now, instead of war or natural disaster, we have another form of market disruption, in the form of speculation.

Traditionally 70 percent of those in the market were end users (us) and 30 percent speculators. Today that’s reversed. In fact, said Markey, “The largest single holder of home heating oil is Morgan Stanley.” That boggles the mind. Market manipulation helps explain why even though we’re producing more oil that we have since 1998 and demand is down (by nearly 2 million barrels a day over the last six years), prices are still rising.

Even the promise to release can help bring down prices and reduce incentives for speculation in the market. Prices started to come down slightly two weeks ago when Nicolas Sarkozy and even the Saudis started to talk about releasing more oil into the market. A petroleum reserve release is on the President’s table.

Real-life remedies for rampant speculation are threatened by budget politics in Washington. Budget slashers want to torch the budget for the Commodities Futures Trading Commission as well as eliminate the elements in Dodd-Frank reforms that would limit Wall Street’s power to manipulate the market. So, while Newt Gingrich promises a return to $2.50 a gallon oil (what’s he smoking?) and Mitt Romney embraces the Ryan slash-and-burn budget and wants to end Dodd Frank, these are policies that would encourage speculation that we would feel at the gas pump.

Tom Ashbrook spent a recent WBUR “On Point” segment exploring what the President can or can’t do regarding lowering oil prices. With Mitt Romney more certain than ever to be his party’s Presidential nominee, the hope is that we’ll now get a serious and full discussion of our energy policy, including a release of crude oil from the strategic petroleum reserve.

I’d greatly appreciate your thoughts in the comments section below.


  1. Margie

    The oil price rise over the last ten years has nothing to do with supply and demand.

    Oil isn't expensive, the dollar is cheap. It's entirely a matter of a devalued dollar. If you compare oil to gold, oil is cheaper today than it was 10 years ago.

    Speculation comes in because prices are now affected not by supply and demand, but also by a floating dollar.

    Eliminate the floating dollar and you will eliminate the speculators.

  2. Wellbasically, you're right. Speculation may have been the proximate cause of high oil and the real estate and stock market bubbles, but it's not the ultimate cause. For that, you have to look at the flood of cheap credit and a devalued dollar... it's the reason that prices for most of our necessities have gone through the roof.

    This is one of those issues where Ron Paul is absolutely correct. I wonder what it will take for the rest of the political establishment to wake up on this one.