`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?


About The Author

Loren Steffy is the business columnist for the Houston Chronicle. His column appears in on Wednesdays, Fridays and Sundays. He is also the author of "Drowning in Oil: BP and the Reckless Pursuit of Profit," and "The Man Who Thought Like a Ship."