Washington, June 24, 2011 – The U.S. stock market took a dizzying roller-coaster ride yesterday, spiking down hard after a dismal morning opening. The reason? The Obama Administration and the International Energy Agency (IEA) announced a joint “emergency release” of oil from their respective reserves—primarily, 30 million gallons of crude from the U.S. Strategic Petroleum Reserve (SPR).
Their rationale? Tamping down the out-of-control oil prices that have been causing severe gas pains for U.S. and Western consumers, tipping these economies back toward a Great Recession that arguably has yet to end.
A further, unstated reason? President Obama’s current poll numbers, which have been tanking about as fast as gas prices have spiked.
In a way, the sudden announcement of the joint release was a good move. Clearly, even with the supply disruptions in Libya, the world currently has at least adequate supplies of crude. Ergo, much of the recent per barrel price hike has been the work of speculators hoarding oil via contract as a store of value vs. unstable world currencies. Since their game was gradually uncovered, oil prices had already begun their slow drift downward. So the joint “surprise” announcement had the desired effect of jolting the holdouts, creating panic (and occasional margin calls), resulting in heavy selling and falling oil prices.
The mainstream media (MSM) quickly fell all over themselves on this story, spinning away to praise the administration for this dubiously effective, largely meaningless short-term move. A CNBC online headline crowed: “Oil Traders: Tapping Reserve Was ‘Genius’ Move by Obama.” Typically, though, the headline was misleading, riffing, quite inaccurately, on the following observation in the body of the story:
“‘Arguably the timing of the release is genius,’ said Stephen Weiss of Short Hills Capital. ‘If the SPR had been released as crude worked higher, the effect would have been relatively momentary, but releasing it now, with the momentum on crude prices turning down, will add to the price decline as speculators hit their stops and margin limits more quickly forcing them to sell.’”
I.e., a good move by the international collective, but hardly a genius masterstroke by President Obama, who’s not even mentioned in the relevant quote.
In point of fact, the U.S. could have moved against at least some of this speculative excess earlier this year by ordering a jacking up of margin requirements on the exchanges trading in West Texas light, sweet crude. Similar moves were unleashed recently to burn predatory silver speculators, causing a brisk retreat in the price of that metal. Why this country did not act similarly with oil speculators on U.S. exchanges, even as the economy again began to slip, remains a mystery.
The current action, whatever its ultimate effect, seems to have been deployed as a blunt instrument aimed more at the even higher price of Brent crude, primarily a European problem. Brent trades on a “cash settlement” basis so margin games don’t apply in this case. Hence, the dramatic price move, made more forceful by the fact that the U.S., at least, is actually selling the oil this time instead of allowing crude to be “swapped back” by the oil companies somewhere down the road as happened on two earlier occasions.
Unfortunately, the pricing problem we’re really dealing with here is the Democrats’ relentless suppression of fossil fuel production right here in the United States. It creates price-boosting artificial scarcity while continually exposing the country and its citizens to the predatory practices of producing countries who are not exactly our friends.
Any relief the current reserve release provides can only serve as a temporary Band-Aid covering up the real problem: a relentless, ideological hostility on the part of this administration toward the use of any and all fossil fuels. Apparently, the administration hope that the smokescreen of temporary price relief will get it through the next election intact without exposing its true intent. In the case of the reserve release, the administration’s policy seems to be “dump but don’t pump.” It’s astonishingly cynical. But that’s par for the course for these people.
Relatively recent discoveries have proved that both American coal and natural gas reserves already dwarf those in much of the rest of the world. And with prices at current levels, the unlocking of America’s substantial unconventional petroleum reserves, combined with the abundance of coal and gas, could quickly establish the U.S. once again as a substantially self-sufficient energy powerhouse with massive, positive economic and political ramifications, not to mention tens of thousands of new, high-paying jobs that our beleaguered citizens would be truly glad to have.
Had we been extracting our own reserves for the last ten or twenty years, our high level of energy dependency might have already been greatly reduced. But the Democrats in Congress and, more recently, the current administration, have customarily treated fossil fuels in much the way Van Helsing dealt with Count Dracula—they’ve attempted to drive a stake through its heart.
All the while, they’ve spun the public on the notion that striving for energy self-sufficiency via increased fossil fuel production wouldn’t result in lower fuel prices anyway. That’s something that’s been temporarily, albeit virtually, disproved by the present reserve release, isn’t it? But then again, consistency has never been much prized by the left, and particularly by the environmental extremists who are ultimately behind much of this price-supply chicanery.
By temporarily curing a symptom of our energy problem—a lack of domestic exploration and production—the administration is attempting to deflect attention from its real energy policy: the creation of fossil fuel shortages that drive up the cost of consumer fuels to the point where consumers, allegedly, will demand an increase in alternative energy solutions.
But don’t bother these people with logic. As already indicated, they have an ideology to pursue. “Saving the earth” is far more important than the livelihoods and wellbeing of American families. If you can’t bring yourself to believe this, here’s a few examples of the current administration’s attitude toward oil in particular and the use of inexpensive fossil fuels in general:
* The administration continues its resolute blockade of drilling permits in and around the Alaska National Wildlife Refuge. These areas could produce 1,000,000 barrels per day.
* The permit blockade continues in the Gulf of Mexico where we’re already pumping about 1.5 million barrels per day. New drilling could increase output by 15-20%. So why don’t we do it?
* Another virtual blockade stalling natural gas production in West Texas, once again spurred on by the eco-fanatics’ convenient discovery of yet another “endangered species” that might or might not have issues were drilling and exploration to increase. The use of more natural gas, at least in the nation’s power plants, might further relieve the pressure on oil supplies. But neither the eco-fanatics, President Obama, nor the Leftocrats in Congress favor this clean-burning fossil fuel either due to their ideological bias against the use of any fossil fuel.
We could go on, but you get the picture. It’s killing every one of us economically; it’s destroying our investment environment in profound and pernicious ways; and, worst of all, it’s robbing our children of their once-promising future.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate in Virginia, West Virginia, and Maryland.
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