Manipulating the Oil Reserve

No one seems to be talking about the one big bombshell in the SOTU. Bush wants to expand the Strategic Petroleum Reserve. Thankfully, this guy noticed.

Thomas I. Palley
January 26, 2007

2006 was the year that oil prices came close to breaching $80 per barrel. This was despite the fact that there were no significant supply interruptions and oil demand actually fell in industrialized countries. That raises the question of what caused the spike.

It turns out there is good reason to believe that record oil prices may be due to our own strategic oil reserve, which the Bush administration may have been manipulating to drive up prices for the benefit of its clients. This is something Congress must investigate, and here is some preliminary evidence.

Any finding of manipulation would go far beyond corruption and be close to economic treason, because when oil prices increase America must pay more for its imported oil. That, in turn, increases the trade deficit and our foreign debt. Alternatively, one can think of price manipulation as the equivalent of a tax increase on American families that is paid to foreign governments, including Iran. While some small energy scandals are under investigation by Congress, the big enchilada is the strategic oil reserve, which may have been “strategically” manipulated to drive up oil prices. The key to understanding this manipulation is demand and supply and oil storage capacity.

The last three years have seen rapidly rising oil prices, and a tight oil market has meant that even small increases in demand have had large price impacts. During this period the Bush administration purposely expanded inventories of the strategic oil reserve, which rose from 600 million barrels in May 2003 to 700 million barrels in August 2005. The administration therefore increased demand by 125,000 barrels per day, and oil prices rose from 30 dollars per barrel to 70 dollars.

(and lots more)

http://www.tompaine.com/articles/2007/01/26/manipulating_the_oil_reserve.php