Pulling out the big guns!
The big guns came out in an all out effort to cool the global oil market, yet it's too bad the rumor of a big gun taking out Colonel Mad-dog Gadhafi wasn't true. It kind of put a damper on what was a most welcome oil sell-off for the global economy.
The big guns were out in force trying to talk this market down, leading with the world's largest oil producer Saudi Arabia who let it be known that they were in touch with Italian and Spanish oil refiners letting them know that the Kingdom would consider any request for extra oil. This of course was news to those European refiners who never asked for any oil. Still the message was clear. "Ask and ye shall receive."
The next "big gun" that came out in an effort to cool off the red hot market was our friends at the International Energy Agency that want to remind us strongly that they happened to be sitting on about 1.6 billion barrels of emergency reserve oil that could replace about 145 days of oil exports. The reminder almost seemed like a threat to oil buyers that if they weren't careful, they might be run over with the biggest tidal wave of oil since "The Poseidon Adventure".
Even the biggest gun, the President of the Untitled States, got into the act by saying that as reported the US will be able to "ride out" any disruption in oil supply. We can ride it out all right, but we may be riding it out with $4.00 a gallon gasoline.
Even Treasury Secretary Tim Geithner was talking about global spare capacity. You know that when you even have a Treasury Secretary talking about oil production and capacity, oil is on everyone's mind.
Of course the recent Mid-East tension is an example why time and again I have called for increase in the US Strategic Petroleum Reserve. Do you remember that debate? Do you remember how President Bush was criticized for adding to the reserve? The uniformed thought it was driving up prices. The reality is that a strong reserve actually lowers price over time as its sheer force can lower prices, especially in a crisis. We saw that yesterday as the IEA used their big, whopping supply to interject into the market place. They did not even have to release a drop of oil but only threaten to do so.
The U.S. has the capacity to raise reserves to approximately one billion barrels but not with funding from Congress. The shortsighted thought that it was too great of an expense and putting oil in a reserve at the ridiculously high price of $30, $50 or $70 a barrel just didn't make economic sense. Does it make sense now? Congress needs to authorize the expansion of the reserve to combat what could be the greatest risk to oil supply in recent memory. With record supply now in the U.S., they could do it in a way that would barley nudge prices.
The U.S. is saying all options are on the table including military action when it comes to Libya. There is talk of establishing a No-Fly zone over Tripoli to keep the Mad Dog from bombing his own people or the oil fields.
In the mean time, tensions continue to build throughout the region in places like Bahrain, Algeria, Iran and most importantly Saudi Arabia. Even in Russia there is talk that the world could see a popular revolt, a small risk to the world's second and almost first, oil producer. In China they are shutting down Facebook as the "Jasmine Revolution" is gaining strength.
Will the reassuring words from the Saudis, the International energy Agency and the President keep us calm as we head into the weekend? Don't bet on it!
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.