The PJ Tatler

Strategic Petroleum Reserve Enlisted to Re-Elect Obama

The Strategic Petroleum Reserve (SPR) has been tapped 4 times since it was created in 1975 to fill in supply gaps, usually because of war or natural disaster.

But President Obama has a slightly different use for the SPR: He wants to use it to keep the price of gas down to aid in his re-election effort.

Reuters:

A formal request from the United States to the UK to join forces in a release of oil from government-controlled reserves is expected “shortly” following a meeting on Wednesday in Washington between President Barack Obama and Prime Minister David Cameron, who discussed the issue, one source said.

Britain would respond positively, the two sources said.

Details of the timing, volume and duration of a new emergency drawdown have yet to be settled but a detailed agreement is expected by the summer, one of the sources said.

Other countries may also be approached by Washington to contribute, a further source said, Japan among them.

Rising world oil prices have pushed the cost of gasoline in the U.S. up sharply, threatening to stall economic recovery ahead of Obama’s bid for re-election in November.

Brent crude has gained more than 15 percent since January to a peak of over $128 a barrel, in a repeat of last year’s spike in fuel costs when the loss of Libyan oil supplies during civil war triggered a coordinated International Energy Agency (IEA) stock drawdown.

Brent for April traded at $123.75 a barrel on Thursday, down $1.22.

Previous emergency oil releases have been coordinated by the Paris-based IEA to meet its mandate to cover substantial supply disruptions on the world oil market.

The IEA has declined to coordinate a broader release among its 28 industrialized members, but says that countries may legitimately decide to release oil unilaterally.

“The Obama administration can only take so much political pain from rising gasoline prices, which pose a serious threat to the economy and the president’s re-election,” said Bob McNally, a former White House energy adviser and head of U.S. energy consultancy Rapidan.

“SPR (Strategic Petroleum Reserve) use is more a matter of when than if. The administration strongly desires international support and coordination from other strategic stock holders, but is encountering stiff resistance from some IEA members who think strategic stocks should only be used for severe supply disruptions,” McNally said.

Top U.S. officials including Energy Secretary Steven Chu and Treasury Secretary Timothy Geithner have said publicly in recent weeks that a U.S. oil release is among the options the government is considering.

High oil prices might also stall the anemic recovery underway, which would also impact negatively on the president’s electoral chances. So the question presents itself; is this a legitimate use of the SPR?

There is no major supply disruption. A “war speculation premium” has added to the price per barrel, but hardly enough — at this point — to justify releasing oil from our reserves. Actually, the problem is supply and demand. Demand is spiking as the world recovers from the Great Recession and economic activity picks up. The demand from China is also rising which puts further pressures on supply. In fact, any release by President Obama would be for purely political purposes — to serve his re-election effort.

Congress might investigate if the president used the SPR but they wouldn’t get anywhere. The reserves are under the direction of the Secretary of Energy who can release or not release at his his discretion.

Now, if there were a war in the Middle East and we had tapped out the SPR, that might cause Obama some problems. But anything the president does to keep the price of gasoline down will be appreciated by the voter so it is not likely to become a political issue pushed by the GOP…

Even if Obama is shamelessly misusing the reserves to further his chances in November.