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Tuesday, March 6, 2012
Dems Weigh SPR Sales: More Fiscal Drag?
There have been some stories in the news lately about Democrat politicians weighing a decision to "release" oil from the Strategic Petroleum Reserve (SPR), based on a reasoning that the "release" (read: sales) of crude oil will have the effect of lowering the price of oil and would lead to lower prices for gasoline for US consumers in this election year.
This could be looked at as another case, similar to the QE2, where the government currency monopolist is surrendering it's monopolist price setting authority, and in a misguided fashion, focusing on quantity and not price.
If we look at the SPR as real assets currently held by the government sector, purchased from the non-government sector at much lower prices, the government sector selling these real assets back to the non-government sector for USD balances at current high oil prices, could be looked at as a form of fiscal drag.
After a sale from the SPR at today's high prices, the non-government sector would be left with net lower USD balances than before the government originally obtained this provision at previous lower prices.
What if the US sold SPR at a fixed price, say $60/barrel, rather than at market price ? As fast as we could pump it, first come, first serve.
ReplyDeleteWouldn't that put downward pressure on world oil prices ?
Right Dan but then it would be about price and not quantity....
ReplyDeleteI'm wondering if SPR sales in 2008 led to the blowoff to $150 as govt morons never hit a bid and in effect raised oil prices similar to how the Fed exacerbated a bond market sell off in the QE2....
The operative idea is that the govt agents want to "get the best deal" for the "taxpayers".... so they want to pay less when they are buying something (QE2) and they want to be paid more when they are selling something (Oil)....
commercials are very short in oil according to COT data.... if the govt goes thru with SPR sales and screws this thing up it could end up starting a huge short covering rally via commercials buying and hello $150 again...
Resp,
Mr. Franko:
ReplyDeleteI suspect that the government should release oil from the reserves as I think it might cause GS and other oil speculators to give up their speculative holdings and the price of oil and gas would drop. Take the time to go to Naked Capitalism and read Chris Cook's article about Enron. I heard on CNBC the other day that the price of oil should be about $55 a barrel and this article seems to support that idea.
None of this is about supply and demand; it is about speculators steeling from the rest of us and our government being complicit in the theft.
GLH,
ReplyDeleteNot taking anything away from Cook's thing but I will never be able to understand it....
Seems like bottom line is all they can do is steal the "roll" away from institutional investors long only and etf investorsin USO type etfs....
Also, Warren Mosler has been pretty consistent in his view that SA has monopoly pricing power in the oil market place, keeping prices as high as SA thinks they can get away with politically... Warren's view here has merit imo... looks like $100/bbl as an approx bottom for now... specs can push it higher for a while but SA just laughs at us and takes the USDs when we do that...
Resp,
Mosler has also speculated that the US government could, if it wanted, use its massive purchasing power to negotiate a better price for oil, similar to how the VA uses its purchasing power to negotiate better prices for drugs.
ReplyDeleteSeeems to me that in the short run, the US could influence price by selling SPR at a set price. It wouldn't be sustainable, but you might only have to do it long enough to pop the speculative bubble. Question is, would bursting the bubble be a good thing ? Sure, consumers would benefit, but how many dominoes would fall ?
Warren's theory about SA setting price makes sense when things are running near capacity, but at the moment there seems to be excess capacity Cook claims SA cannot prevent speculative bubble from bursting eventually. Even a monopoly producer has to deal with a supply/demand curve.
Dan,
ReplyDeleteIve looked into these SPR sales and DOE has a summary here:
http://fossil.energy.gov/programs/reserves/spr/Historical_Sales_and_Exchanges_2011_upda.pdf
It looks like they rarely do it, and when they do, it is not very much.
However small it still would technically constitute fiscal drag if they bought low and sold high... this they never think of.
but doesnt look like they ever exacerbated bullish moves in oil prices... as they never sold very much. so doesnt look like it will be the govt that will foment further bullish moves...
These press reports look like all political posturing for an election year.
Resp,
Dan,
ReplyDeleteI think Warren thinks that everyone is running at capacity except SA.
Libya is off, Venesuela problems... so SA is the only major producer that has the ability to cut production or increase production as the "swing" producer. Warren sez they post their price and then fill all orders at that price without concern about the quantity of the orders... textbook monopolist technique.
Well see if $100 holds looks like prices could be pulling back from the 110 level towards 100.
Resp,