Who Will Choke First?

The IEA coordinated with multiple nations including the US agreed to release oil viz a vis their Strategic Petroleum Reserves (SPR) in an attempt to manipulate the price of oil lower.  This move reeks of a desperate attempt to screw the oil speculators for driving the price of oil over $100/barrel.  Never do they mention the possible causes including the free money given to speculators via the Fed 's QE2 and its ilk from the Bank of England to North America and across the ocean again to the Bank of Japan.  It's about the fall of Libyan oil production which is seen as temporary, but never do they mention the plateau in oil production that has occurred in the last five years despite record prices.  Never is it about demand outstripping supply.  Peak oil is barely acknowledged.

To put into perspective, the IEA is going to release 60 million barrels of oil from SPR over the next 3 months at the rate of approximately 2 million barrels a day.  This is compared to the 85 million barrels a day that the world uses or the 24 million barrels a day the US uses!

This is an attempt to spear the oil speculators and to try and drown the world in oil.  It won't work.  Demand from emerging countries is voracious and only high prices will stimulate more production as well as cause some demand destruction.  How are we as a society to transition to other transport energy sources if the price mechanism keeps being manipulated?  Do governments and central planners have a good track record of managing commodity markets?

This may drive the price of oil down in the short run, but I doubt the markets won't see through this soon.  The SPR will need to be replenished, and where prey tell will they get this oil from?  Oil markets are volatile enough without this blatent attempt at manipulation.

The IEA and gov'ts have a right to worry about high energy prices that are choking back growth in the economy, but a temporary flooding of the oil markets with stored reserves will only increase price volatilty in the short run and potentially create more demand in the long run.  The SPR was intended to be used in emergencies like hurricanes or wars that may cause supply disruptions;  now it's being used to manipulate prices and serve some policital agenda.

Why not increase gasoline taxes at the pump which will destroy some marginal demand and reinvest the proceeds to alternative energy industries or to increase energy efficiency?  This will have a more lasting impact on the economy and jobs.  With summer driving season upon us, the markets will see through this quickly and we'll be back at $100 soon.

Barring some meltdown in Europe, I think we should hold off on selling SLB until later this summer.