Oil reacts to strategic reserve rumors, but should it?

A wee bit of the blarney

It seems oil prices went on a wild ride after a wee bit of blarney sent oil falling faster than the sun going down on Galway Bay. A report from Reuters News cited two British sources that said Britain had decided to cooperate with the United States in a bilateral agreement to release strategic oil stocks in an effort to prevent high fuel prices from derailing economic growth in the U.S. in an election year.

Now if that were true, that would be against everything our Strategic Petroleum Reserve was supposed to stand for and would be a reckless act in a time when we are facing a great threat to supply. Whatever Prime Minster David Cameron thinks of the world of Barrack Obama, the American people seem to be a little less fond of him. As gas prices go up, the President's poll numbers go down. Reuters said that a formal request from the United States to the UK to join forces in a release of oil from government-controlled reserves is expected "shortly."

Well after the oil, gasoline and heating oil market tanked and before the outrage and indignation from the President's critics could set in, the White House denied the story saying that the report of agreement on oil release was inaccurate. Inaccurate or not we know that an SPR release is on the minds of the leaders. Europe and members of the International Energy Agency are against a release of oil at this time, as they should be as the marketplace has already adjusted to the expected loss of Iranian oil due to the European embargo. High prices have slowed the hoarding and more oil now may just mean more hoarding.

If Obama and Prime Minister David Cameron are just using our valuable resource to win a few political polling points, that would be a very bad thing indeed and could actually do more harm than good. While the drop in price may make us feel good for a couple of days, the truth is prices would go back up soon and it would hurt the power of the reserve. The reserve is there for emergencies, not for political reasons. It is like a hot day in the summer in the city of Chicago. Kids in the city sometimes turn on fire hydrants to get some relief. Yet what happens is that when the fire hydrants are opened, all over the city the water pressure goes down and if there is an actual fire the water may not reach the building and the house burns down.

Now if you want to give the President and Prime Minister the benefit of the doubt, the reason they may be getting ready to release oil from the reserve may be because they know something that we do not know. Obama has been saying that the window of diplomatic opportunity with Iran is closing. Perhaps that was the reason.

Yet oil should be rising with the stellar economic data. The bond market is rising, slowing major advances. Still with the swift banking system cutting off Iran’s banks and Iran’s President Ahmadinejad getting called to the carpet, upside risks remain. Yet technically we are looking heavy. Rising WE rates and a strong dollar may keep oil from going too far!

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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