The Obama Administration plans to release 60 million barrels of oil from the Strategic Petroleum Reserve over the next 30 days onto the world market. This represents less than 1/10 of the total amount in the SPR, about 727 million barrels. But it will increase supply somewhat, compensating for what the Administration considers a supply disruption due to turmoil in Libya and elsewhere in the Middle East.
Energy Secretary Steven Chu made the announcement, and he stressed that the supply disruptions have had an impact on the global recovery. He estimates that the Libyan situation has caused a reduction of around 1.5 million barrels per day, so the release of 60 million barrels would more than cover for that.
This is a pre-emptive reaction to expected demand spikes in the summer driving season. Goldman Sachs and other forecasters estimated earlier in the summer that the price of gasoline could top $5 a gallon if demand rises.
The price of oil dropped on the news, and is currently sitting at around $90 a barrel.
When oil spiked to $100-$110 earlier in the year, Exxon-Mobil CEO Rex Tillerson told a Congressional committee that the natural price without speculation would be closer to $60-$70 a barrel. Democrats like Maria Cantwell (D-WA) have led an effort to get federal regulatory agencies to crack down on speculation. Yesterday, the Federal Trade Commission announced they were opening an investigation into oil market manipulation. The Commodity Futures Trading Commission, which has primary regulatory oversight on the oil markets, has the ability – actually the responsibility, under Dodd-Frank – to set position limits for speculators in the futures market, which have risen from 38% a decade ago to 80% today. But they have delayed that rule, leading Bernie Sanders (I-VT) to say that CFTC is breaking the law.
The Administration’s decision follows increased production by the Saudis and other oil-producing companies. Clearly the White House is pulling out all the stops to depress the price of gas, which will have an economic impact in the near term.