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Why the US is Really Releasing Oil Reserves

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The loss of Libyan sweet crude, and the scarcity of other sources, seems to be the most logical answer.

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Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).

Yesterday, the International Energy Agency (IEA) called an emergency press conference to announce that the US and its partners will release 60 million barrels of oil in the next 30 days to offset the disruption of the flow stoppage from Libya. The US will "dump" (my words) a million barrels a day from the Strategic Petroleum Reserve (SPR) into the Texas and Oklahoma markets to help alleviate global shortages.

As you can see by the chart below (from the Energy Information Administration (EIA), US domestic crude oil stocks have been consistently below historical averages for the past year, well before the shutdown of Libyan oil. As we head into the summer driving season, the release of an extra million barrels a week from the SPR should help relieve any spot shortages, and minimize any price spikes this summer.



Wait a minute, this chart's upside down! It really looks like this:



Obviously, the release of an extra million barrels a week when inventory is higher than normal reeks of the obvious -- politics. The only real question is what is the political agenda? The choices are many.

Let's go through the obvious choices which the press are beating into the ground since the announcement made yesterday morning.

  • President Obama did it to increase his election chances next year. Lower pump prices = better polls.

    Seems a bit early for that. Next June, that might be more logical.

  • He did it to hurt oil speculators, much like a currency intervention.

    Possible, but oil peaked the first week of May, and it's been in steady downtrend since.

  • Obama and the Europeans did it to stick it to the OPEC pricing hawks, Iran, and Venezuela.

    Couldn't happen to a nicer couple of guys, but this seems like pleasant collateral damage, not the primary reason.

  • He did it because the Europeans wanted it and like the Libya bombing, he eventually folded under European pressure.

    Definitely a Rush Limbaugh-type analysis, but the Europeans did want it badly.

  • He did it because the Fed is out of bullets and direct commodity manipulation is the only remaining bullet.

    Hmmm...

  • Finally, we have the actual reason that the IEA stated. The loss of Libyan sweet (low sulfur) crude production cannot be made up through increased sour (high sulfur) production elsewhere because European refineries that lost Libyan sweet crude cannot handle sour crude.

    This seems to be true. It also explains why the British and French forces have stepped up the air attacks on Libya to try to force Qaddafi out. They don't care who is running the show as long as sweet crude is pumped. There is nothing like altruism and protecting civilians when oil is concerned.

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