EconoSpeak: Playing With The Strategic Petroleum Reserve, Barkley Rosser
Over the last month crude oil prices have noticeably declined from in the neighborhood of $85-86 per barrel to $78-80 per barrel. But there has been only a very small decline in retail gasoline prices, and the headlines even as of yesterday was all about “sharply rising gas prices.”
So, Pres. Biden has moved to release a record amount of oil from the Strategic Petroleum Reserve, getting several other nations to also release such reserves, including UK, South Korea, Japan, Inda, and maybe even China. What was the result on crude oil markets? Not much. Brent slightly declined while WTI actually slightly increased, the markets perceiving this as largely a very short term move. Of course, Biden has also asked the FTC to look into oil prices not lowering retail prices after the crude oil price decline.
This reminds me of a tale I was told in the 1990s, during the Clinton admin, by a friend working on the Council of Economic Advisers staff. It involved a time when oil and gasoline prices had risen somewhat, although they were mostly quite low in that time period. The CEA Chair was Joe Stiglitz while the Chief of Staff was Leon Panetta, and they met with Clinton.
There had been public talk of releasing oil from the STPR to counteract this fairly small upsurge of prices. Stiglitz spoke against it, arguing it would have little effect on the markets, and furthermore, it looked like the markets would turn around on their own and push down the temporarily mildly elevated crude oil prices. Panetta’s response was, “Great! We can release some oil, not really disrupt the markets, but claim credit for the price decline when it happens! “Some oil got released with a bout of publicity.
So, maybe it is worth it for the publicity, even if it really has little actual effect on things.