Posted on 06/23/2011 6:54:24 PM PDT by randita
Did the International Energy Agency (IEA) just deliver the oil equivalent of QE3?
The decision to release two million barrels per day of emergency oil reserves — with the U.S. covering half from its strategic petroleum reserve — is surely aimed at the sputtering economies of the U.S. and Europe following an onslaught of bad economic statistics and forecasts. This includes a gloomy Fed forecast that Ben Bernanke unveiled less than 24 hours before the energy news hit the tape.
I wonder if all this was coordinated.
The Bernanke Fed significantly downgraded its economic projections, blaming this forecast on rising energy (and food) prices as well as Japanese-disaster-related supply shocks. Of course, the Fed head takes no blame for his cheap-dollar QE2 pump-priming, which was an important source of the prior jump in energy and commodity prices. That commodity-price shock inflicted a tax on the whole economy, and it looks to be responsible for the 2 percent first-half growth rate and the near 4.5 percent inflation rate.
Bernanke acknowledged the inflation problem, but he didn’t take ownership of that either. Reading between the lines, however, the Fed’s inflation worries undoubtedly kept it from applying more faux stimulus to the sagging economy with a third round of quantitative easing.
Somehow the new Fed forecast suggests that the second-half economy will grow at 3.5 percent while it miraculously presses inflation down to 1.4 percent. But the plausibility of this forecast is low. It’s almost Alice in Wonderland-like.
So, low and behold, the IEA and the U.S. Department of Energy come to the rescue.
Acting on the surprising news of a 60 million barrel-per-day crude-oil release from strategic reserves scheduled for July, traders slammed down prices by $5 to $6 for both West Texas crude and European Brent crude. That’s about a 20 percent drop from the April highs, which followed the breakout of civil war in Libya in March. In fact, both the IEA and the U.S. DOE cited Libyan oil disruption as a reason for injecting reserves.
Of course, most folks thought Saudi Arabia would be adding a million barrels a day to cover the Libyan shortfall. The evidence strongly suggests they have. So the curious timing of the oil-reserve release — coming in late June rather than last March or April — strongly suggests that governments are manipulating the oil price with a temporary supply add to boost the economy.
In theory, these reserves are supposed to be held for true national emergencies. But the real U.S. national emergency seems to be a political one — that is, President Obama’s increasingly perilous reelection bid amidst high unemployment and the second-worst post-recession economic recovery since 1950.
Tall joblessness, big gasoline prices, low growth, a poor housing sector, growing mortgage foreclosures, and sinking polls are probably the real reason for the strategic-petroleum-reserve shock. European Central Bank head Jean Claude Trichet warns of a “Code Red” emergency due to Greek and other peripheral default risk. China has registered its lowest manufacturing read in 11 months. U.S. jobless claims increased again. And the U.S. debt-ceiling talks have broken down. It’s almost a perfect storm for economic and stock market jitters.
So, will the government-sponsored oil-price-drop work? Will it fix the economy, by lowering inflation and speeding up growth? Well, it might, provided that the Bernanke Fed doesn’t bungle the dollar.
If Bernanke keeps his balance sheet stable, applying what former Fed governor Wayne Angell calls quantitative neutrality, it’s quite possible that the greenback will rise and oil and commodity prices will slip. In fact, ever since Bernanke’s first press conference in late April, when he basically said “no QE3,” the dollar had been stabilizing with oil prices slipping lower.
Bernanke is right to hold off on QE3; we could all be surprised with a stronger dollar. Then we could lower tax, spending, regulatory, trade, and immigration barriers to growth. If we did that, we wouldn’t need another short-run, so-called government fix, this time from the strategic petroleum reserve.
Lord save us from short-run government fixes. Haven’t we had enough of them?
– Larry Kudlow, NRO’s Economics Editor, is host of CNBC’s The Kudlow Reportand author of the daily web blog, Kudlow’s Money Politic$.
And I'm not being sarcastic.
It's real.
Short of a miracle, nothing is going to save the AnointedIdiot’s “skin”....even if he ends up raising that vaunted billion dollars for re-election. Daffy Duck has more experience than this SOB! =.=
Its a sop to France for Libya and probably a payday for Goldman. No doubt Goldman has the Big Short on Oil for July. 5% downdraft in 1 day.
Remember the scandal when Bush released some from the reserves? IIRC, minorities and people with special connections got the contracts to sell the oil.
This release makes us more vulnerable to an Arab blackmail in the future, after the Muslim Brotherhood take over. That is Obama’s plan.
Commodity prices are manipulated like a trick yo-yo.
Ping for reading when I am sober
“The decision to release two million barrels per day of emergency oil reserves — with the U.S. covering half from its strategic petroleum reserve — is surely aimed at the sputtering economies of the U.S. and Europe following an onslaught of bad economic statistics and forecasts. This includes a gloomy Fed forecast that Ben Bernanke unveiled less than 24 hours before the energy news hit the tape.
I wonder if all this was coordinated.”
When is anything the left ever does *not* coordinated?
If it is 60 million barrows total then it is only good for 3 days. If it is per day then it must be going over seas again.
In any case the reserves would only last about 10 days at that rate.
This is nonsense.
It's our only hope!
A quick fix will not do Premier Hussein any good, and at the very best, this SPR release is going to be very short lived.
The excuse they are offering that this somehow balances out the losses from Libya is just BS....
This announcement blew-up the speculators that were betting that the price of oil (mainly Brent) would go up forever.
It pre-emptively burst a balloon that was causing US gasoline and diesel prices to rise.
It may have been one of the few good things the US Government has done in the past 2 1/2 years.
Let it play out...
Wag the Dog
I’m willing to listen to the theory that it was (a) a plan to break speculation (note the naked threat that it might unexpectedly happen again), or (b) it was a hail-mary to get the country bootstrapped into a better mood to break the supposed doom and gloom cycle.
If this knocked oil down $4, open season on drilling and express, 10-year irrrevocable permits would have knocked it down 15. But that won’t happen, because the latter would be a PERMANENT fix, and that is a fix that the administration doesn’t want.
As sustainable as cash for clunkers, or cash to get a mortgage, or cash to buy a Volt....or all those ‘Five year plans’ the commies used to do.
Oil prices based on fundamentals should be in a pretty steep decline due to decreased demand and they are being manipulated to drive them higher artificailly.
This will help burst the oil bubble and make the speculators a bit less bold. No doubt this decline will be assisted by Obama insiders such as Goldman Sachs shorting the market and who will make a killing.
I'm naive, but I still have hopes that, someday, the Dem Party will grow up and produce at least one adult!
I think that anything that pisses off OPEC is good. This should indicate how a little extra oil goes a long way, Drill baby drill.
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