Interesting article about another potential oil shock. There seems to be little doubt that this is a possibility, but our options thereafter are less clear.
Although America’s strengthening economy is better able to weather higher fuel costs, election-year politics is bound to bring pressure to “act” against high petrol prices. One misguided response would be a temporary cut in the petrol tax in an economy that already taxes fuel too lightly. (Far better to use the next price fall as an opportunity to raise the tax.) A more dangerous idea would be prematurely to release supplies from the country’s strategic oil reserves to dampen prices. Barack Obama did that last summer; the president will doubtless be tempted to do so again if petrol prices rise much further. At a time when there is a risk of a genuinely big supply disruption, from Iran, that would be reckless. The odds of averting a 2012 oil shock depend disproportionately on America keeping its cool, both at home and abroad.
I don't like how this author dances around the point and ends with the conclusion of "do nothing". He presents a structural problem (election year), and follows it with two options that policymakers might follow, both of which he argues are bad. Our petroleum reserve would last 34 days at current consumption, and if there really was a fear of Iran shutting off a large % of the world's supply, even stretching the reserve and buying elsewhere will be incredibly painful for us. Seems like we'll be using some of that oil again this summer.
What do you guys think? Are policymakers likely to dip into our reserves this summer before we hit $5/gallon?
I'm afraid dipping into the reserves won't put a dent in oil prices.
You have to replace those reserves eventually so it doesn't change anything. Obama could do it to get re-elected though (as if he needed help, I'm pretty right wing but I watch the republican debates for comedic relief) since it might bring down prices in the short-term if it was a big enough draw.
If things heat up in the middle east, you could see new all-time high prices. If China cools down, you could see prices retreat significantly; maybe even below $80/bbl on WTI.
just screw the oil
i wana drive natgas
fuck the oil-behemoth controlled government!
Agree with Connor. The SPR release was ineffective last summer and it will be just as ineffective this time around.
Also, the US hasn't imported oil from Iran in decades. It's mainly Europe (I believe around 600,00 bpd).
Its not like everyone else in the world would want those barrels the US is currently importing if Iran is shut in...
??
The SPR release did jack all and I think traders will be cautious. I know a lot of them got caught during the last release (only the second in history) so expect more caution.
I could see the WTI Brent spread widening (on the Brent movement) since EU/Asia are more dependent on Iranian imports.
Rumplesmoothspin - I also see it widening on the back of a depreciation of WTI, especially with all of the shale oil from utica/bakken and eagle ford contributing to the glut at Cushing. Also, the reversal of seaway in June and the increase in refinery utilization rates won't keep up with all of the crude we're unearthing here in the US and in Canada.
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