Oil stimulus drains away

Neil Munro White House Correspondent
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The White House decision to sell 30 million barrels of oil from the Strategic Petroleum Reserve has failed to stop the upward march of oil prices, or to stimulate the economy.

Prices for crude oil and gasoline dipped on the June 23 announcement, but have subsequently risen because expanding economies in Asia and South America are bidding up the market price, according to oil industry analysts.

President Barack Obama’s sale “did not make a damn bit of difference,” said Dan Kish, vice president for policy at the Institute for Energy Research. Eight days after the announcement, “the price of oil was higher than it was the day he announced” the release of oil from the reserve, Kish said.

Oil prices fell roughly $4 a barrel to roughly $91 a barrel when the announcement was made. Since then, prices have climbed up to near $100 a barrel, according to an July 7 AP news report. (Social Security becomes a pawn in debt talks) Gas prices rise and fall in line with oil prices, and the national average price nudged up 1.4 cents on Thursday to reach $3.58 a gallon, according to AAA and the Oil Price Information Service. That’s a price increase of 4.2 cents per gallon from a week ago.

“Crude prices are back to where they were,” said Rayola Dougher, senior economic adviser at the American Petroleum Institute. “It was just a temporary blip.”

Prices won’t come down, she said, until the federal government allows greater use of new energy resources being found in the United States and Canada. We need policymakers to face the facts, and make sure we have reliable, affordable supplies of fuel,” she said.

The oil sale was another of the administration’s many regulatory and legislative efforts to jump-start the economy. These include the $787 billion economic stimulus in 2009, the ‘cash-for-clunkers” deal, the economic aid package given to General Motors and Chrysler and the “quantitative easing” money-creating policy adopted by the Federal Reserve,

However, the economy remains stalled, and unemployment remains at 9.1 percent. In May only 36,000 new jobs were created, even as young people and immigrants boost the overall labor-force by roughly 100,000 people.

White House officials said the oil-sale decision was prompted by the Libyan civil-war, which cut the flow from the Libyan oil-fields. “We’re focused on the disruption of supply,” said a White House official said June 23. “140 million barrels have been taken off the market since the Libyan disruption… it has had effect on the tightness of the market,” he said.

The oil-sale was intended to offset the normal price increases that come during summer, as people take summer vacations, said the White House official. However, White House officials declined to predict the dollar-and-cents impact of their oil-sale. “We’re not making predictions about market prices… prices will be what they are,” the official said.

Oil prices have moved up because the administration’s oil-sale doesn’t keep pace with expanding global demand for oil, said Kish. “The world is consuming more oil not because of us – we’re burning the same amount of oil as we did 30 years age – but because of China, India, Latin America and other places where economies are growing,” he said.

Oil-buyers know that demand is going up, and today’s price is shaped by their fear of future shortages, he said. Oil-traders know that Obama didn’t change the industry’s ability to deliver more energy or “give a signal that some relief is on the way,” he said.

In June 2008, President George W. Bush pushed down oil prices by $9.26 a barrel during his speech in which he announced vigorous new onshore and offshore oil-exploration and production initiatives, said Kish. Prices continued downwards, he said, because “people said ‘Finally the United States is getting off its ass, and instead of just talking about increasing oil production, they’re doing something about it.’”

The administration recognizes that increased supplies reduces prices, but they continue to restrict U.S. energy supplies, said Dougher. For example, Obama’s restrictions on oil-drilling in the Gulf of Mexico has reduced oil-supply by roughly 60 million barrels, and its refusal to approve a planned oil-pipeline from Canada is cutting future oil-supplies by nearly one million barrels a day, she said.

But Obama is wedded to visions of green-energy, and green-energy companies are very influential in the administration, said Kish. “He wants the country to run on sunshine, lollypops and rainbows… and to break the kneecaps of existing energy suppliers.”