The politics of oil

Gasoline prices have been falling lately — almost 50-cents a gallon — so it was a surprise today when the Energy Department announced its tapping the strategic petroleum supply in an effort to push the price of gasoline down.

Energy analysts expect the move will mean lower gasoline prices for consumers this summer. That would give Americans more discretionary spending power, helping businesses ranging from grocery stores to ice cream parlors. It will also give manufacturers and truckers a break, because the price of diesel fuel is expected to drop as well.

What will it mean? It means the price of gasoline will drop, then it will go back up again.

Some data earlier this week helps to explain why.

MasterCard reported that the demand for gasoline rose .4 percent from a year ago because the price has fallen…

“As prices continue to fall, gasoline demand seems to have climbed into barely positive territory in year-over-year terms, after the 1 percent to 2 percent declines recorded throughout most of April and May,” John Gamel, director of economic analysis for SpendingPulse, said in the report.

It’s an intriguing cycle. As prices rise, mostly because of demand, consumption falls, which creates more of a supply with less of a demand, causing prices to fall.

There’s no question, of course, that the high price of energy threatens the global economy and the weak recovery from the economic collapse. The blog, The Oil Drum today said that should be enough for governments “to wake up and introduce serious energy policies to deal with the clear and present dangers posed by peak oil.”

Christopher Helman at says Americans weren’t going to feel the effect of the Libyan oil cut until later this summer, and today’s move — coordinated with OPEC — indicates a longer term view of what’s coming than merely the price of gasoline today.

Markets move based on today’s fundamentals and expectations of future supply and demand. The coming months, as we head into the driving season, would likely see the impact of the Libyan crisis felt most keenly; this is why the IEA is acting now. Some producer countries have announced their intentions to raise production, but it takes time for these incremental barrels to be produced and shipped to consuming markets. The use of IEA strategic stocks now will help bridge the gap until these new supplies are available. The IEA will continue to monitor the situation. If supply remains disrupted and markets remain tight in the future, the IEA does not exclude another decision to make additional supplies available to the market.

There’s another angle to all of this, of course. Politics. Jay Hancock’s economic blog at the Baltimore Sun smells something that’s not oil.

This isn’t what many people believe the petroleum reserve is for. It’s widely thought of as being there for true emergencies such as war and severe supply shocks. This isn’t as nakedly political as if reserves had bene tapped in summer 2012. Nevertheless, the political overtones could hurt Obama

  • David

    Sometimes I wonder how much of a burden the US war machine places on the oil market. It takes a lot of fuel to keep the logistics machine running, let alone the tanks etc.

  • Jim Shapiro

    David – What a coincidence. Sometimes I wonder how much the US war machine is ABOUT the oil market.