Initial Thoughts on the Release of Oil From the Strategic Petroleum Reserves

There are so many nuances to the story surrounding Obama's decision to release thirty million bbls of oil from the US Strategic Petroleum Reserve. (I understand worldwide 60 million bbls of oil will be released.)

This is but one more nuance to consider, useful for those attending a cocktail party tonight, or perhaps a political fundraiser.

First, "everyone" agrees the world is awash in oil. The $100/bbl is due to the weak dollar; it is not due to the fundamentals of the commodity, i.e., supply and demand.

The supply addition comes at a time when refiners in the world’s biggest economy have more crude on hand and are importing less as demand for fuels such as gasoline and diesel is slipping, according to Energy Department figures. 

Second, "everyone" agrees the US economy is slowing down; all agree we are in a "soft patch." the only argument is whether we are headed for a double-dip recession.

Third, Saudi says they will increase production, and, further, they say they can cover any shortfall and provide the market with however much oil is needed.

Now, why in the world, would a president release oil from a STRATEGIC reserve if there is no shortage, if there will soon be a further slowing of global demand for oil, and, if Saudi says they can and they will increase production to meet any shortfall?

The real reason is that the polls suggested to Obama he was falling fast in popularity and had to do something momentous.

Of the three "facts" presented above, I doubt anyone can seriously deny the first two. It's that third one that should catch the analysts' attention. Releasing oil from our STRATEGIC reserves suggests the administration knows that the Saudis cannot or will not produce enough oil to meet current global demand. That should be a huge wake-up call for those who buy into the Saudis' statement they can and they will produce enough oil to meet demand, or at least any shortfall caused by conflicts in the Middle East.

I've never believed the Saudis on that issue, analysts writing for Forbes magazine don't believe the Saudis, and, now, apparently neither does the president.

There is neither space enough nor time enough to further the discussion in the comment section.