`Strategic’ oil release plays into traders’ hands

When the Obama administration said it would release oil from the Strategic Petroleum Reserve, it seemed a largely political move to create the appearance of fighting higher gasoline prices at home. Some observers suggested it might be a ploy to mask declining Saudi oil production or that it might be sending a message to speculators. It may have been a combination of all these, but if so, it seems to have failed on every front.

The release of 30 million barrels, coordinated as part of a 60-million-barrel release with other oil-consuming nations, hasn’t had an effect on prices. Oil prices began rising almost immediately after the release was announced, and they’ve kept rising.

And it doesn’t seem to have sent a message to the speculators, because some of them are actually buying the oil that the government is selling.

Of the 15 companies that submitted winning bids, a third were trading firms. One of them, Barclays Bank, got the lowest price at the auction — $104.97 a barrel. This, of course, was inevitable in a global commodity market, but the irony is that many of the trading firms are likely to do what they did in 2008: store the oil and wait for prices to rise, then sell it at a profit.

What, then, was the message the government was trying to send to speculators? Or for that matter the market in general?