Doing something about the price of oil

By E.M. | WASHINGTON, DC

THE world produces 80m barrels of oil a day, give or take; America consumes 19m or so of that. Today, Barack Obama ordered the release of 30m barrels from the Strategic Petroleum Reserve. It should trickle out over the next month, in conjunction with another 30m from other countries' stockpiles. That works out at another 2m b/d for the next month, or a 2.5% boost to supply.

That's nothing to be sniffed at, of course: on the margin, a shift of 2.5% can have quite an impact on price. If the 140m barrels lost to the market thanks to the turmoil in Libya can help to push the price up, then an extra 60m barrels, released over a shorter period, should be able to depress it a bit. The oil price did indeed fall on news of the opening spigots, by about 5%.

Nonetheless, Mr Obama's move serves mainly to illustrate his impotence with regard to the oil price. The entire SPR contains only 727m barrels—38 days' supply for America, or nine for the world. Even the relatively tiny amount Mr Obama proposes to unload from it has caused protests from OPEC leaders, who say he is undermining their investment in new capacity. There is talk of OPEC withholding supply to make up for America's largesse.

Moreover, the opaque process whereby crude prices feed into those for petrol also works against Mr Obama. Let's hope the SPR contains grades that nearby refineries have the capability and spare capacity to process, or the impact of the president's gesture will be further diminished. A hurricane that knocks out a few critical pipelines or refineries for a spell could easily undo all the president's good work.

If Mr Obama really wanted to make petrol cheaper, he could ask Congress to repeal or reduce America's fuel tax. But it's already low enough that the results would soon be lost amid the fluctuations of the oil price. Anyway, that's not what he really wants: he wants to look like he's doing something. And by that measure, opening the sluice gates at the SPR works well enough.

(Photo credit: AFP)