Lowering gas prices by Marjorie Arons-Barron

The entry below is being cross posted from Marjorie Arons-Barron’s own blog.

It never made sense to me, but now it does. I never thought this was the time for the President to open temporarily the spigot of the nation’s strategic petroleum reserve,  the world’s largest supply of emergency crude oil. Although prices were high and getting higher, there didn’t seem to be a real disruption in the oil supply. Speaking to the New England Council on April 11, Congressman Ed Markey made a cogent argument for immediate Presidential action.

According to him, a measured release can help stabilize and reduce prices, minimizing the impact of sky-high rates on our economy. George H.W. Bush released oil from the reserve in 1991 during the first Iraq War, Desert Storm; prices came down 19 percent. George W. Bush did it in 2005 after Hurricane Katrina, also lowering prices. President Obama did it last June to respond to disruptions in Libya. Now, instead of war or natural disaster, we have another form of market disruption, in the form of speculation.

Traditionally 70 percent of those in the market were end users (us) and 30 percent speculators. Today that’s reversed. In fact, said Markey, “The largest single holder of home heating oil is Morgan Stanley.” That boggles the mind. Market manipulation helps explain why even though we’re producing more oil that we have since 1998 and demand is down (by nearly 2 million barrels a day over the last six years), prices are still rising.

Even the promise to release can help bring down prices and reduce incentives for speculation in the market. Prices started to come down slightly two weeks ago when Nicolas Sarkozy and even the Saudis started to talk about releasing more oil into the market. A petroleum reserve release is on the President’s table.

Real-life remedies for rampant speculation are threatened by budget politics in Washington. Budget slashers want to torch the budget for the Commodities Futures Trading Commission as well as eliminate the elements in Dodd-Frank reforms that would limit Wall Street’s power to manipulate the market. So, while Newt Gingrich promises a return to $2.50 a gallon oil (what’s he smoking?) and Mitt Romney embraces the Ryan slash-and-burn budget and wants to end Dodd Frank, these are policies that would encourage speculation that we would feel at the gas pump.

Tom Ashbrook spent a recent WBUR “On Point” segment exploring what the President can or can’t do regarding lowering oil prices. With Mitt Romney more certain than ever to be his party’s Presidential nominee, the hope is that we’ll now get a serious and full discussion of our energy policy, including a release of crude oil from the strategic petroleum reserve.

I’d greatly appreciate your thoughts in the comments section below.

One Response to Lowering gas prices by Marjorie Arons-Barron

  1. C R Krieger says:

    You asked for thoughts, so I will say that speculation has its natural limits.  Tulip bulbs no longer go for the cost of a house.  For a short period they did in the Netherlands.  Morgan Stanley is looking for some small margin of return, I guess, or to hedge against something else.  If they think that they can corner the market and demand whatever price they wish, they are wrong.  They can make it hard on consumers, but consumers adapt.  Imagine what gas prices would be if there wasn’t Internet shopping, and consumers were driving hither and yon to make purchases and pick up stuff.

    While I believe markets should be regulated, I worry that attempts to write more and more rules will result in a byzantine system in the market place, with talent flowing to the work of outsmarting regulators who will find that they can never quite keep up with the quants, lawyers and accountants.  And, to the degree the US Congress shirks its responsibility (again) by granting more and more power to the regulators to make the rules, to that extent we lose our form of Government and become more … more like … oh, I don’t know.  Maybe Europe of 2020.  Even today you have someone in Brussels trying to tell the Brits what constitutes “fish and chips”.

    If a small release, restocked, is made and it works, better for all of us.  My real concern, as a citizen, is that the Federal Government still believes in Keynesian Economics—Republicans and Democrats alike.

    Regards  —  Cliff