Is $3.29 gas really a strategic emergency?

I really don’t get this one:

The United States and its industrial allies in the International Energy Agency announced Wednesday that they would release 60 million barrels of crude oil from reserves over the next 30 days. The news immediately sent oil prices down about five percent.

The release would be the biggest ever coordinated from strategic reserves, and over the next month it would exceed the amount of oil lost on world markets since the fighting in Libya. Half of the release would come from U.S. reserves.

Fighting in Libya has actually had a pretty minimal impact on global oil supplies. While gas prices spiked earlier to nearly $4 a gallon – more in some places – the price of oil has since moderated and gas prices have come down.

So why the biggest coordinated release from strategic reserves now?

The Strategic Petroleum Reserve is designed to supply America with oil during emergencies that seriously disrupt the oil market. The Libya situation certainly does not fall into that category.

Perhaps this is an economic stimulus effort designed to counter the braking effect high gas prices have had on the economy. If so, we’ll probably seeing this happen more and more. I think we’re reaching the point in global oil supply and demand where the price of oil will continue to be a genuine deterrent to economic growth. Whenever the global economy begins to pick up steam and demand for oil naturally grows, the price of oil will rise until that demand is diminished by an economy weakened by the high price. It’s a feedback loop that will be hard to break out of, I fear, as peak oil becomes a reality.

Releases from the strategic reserve certainly won’t be enough to break that feedback loop. I think we’d be better off holding onto the reserves for a genuine disruption in supply.

One Response to Is $3.29 gas really a strategic emergency?

  1. Pingback: Joe Mostowey

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