Will oil rescue prevent high gas prices?

The US and the UK are reportedly teaming up in an effort to ease prices at the pump.

By Wall St. Cheat Sheet Mar 15, 2012 4:52PM

Image: Gas station © Purestock/Purestock/Getty ImagesThe United States and Britain agreed Thursday to release emergency oil reserves in an effort to prevent high gasoline prices from further crippling the economy, Reuters reported.


A formal U.S. request asking the United Kingdom to release oil from government-controlled reserves is expected shortly, the news service reported, citing sources. The request would follow a meeting Wednesday in Washington between President Barack Obama and Prime Minister David Cameron, who reportedly discussed the issue.


But will the oil release do any good?


Oil prices (USO) have remained elevated this year. After dipping to $96 per barrel in early February, light sweet crude rebounded to as high as $110 in March. Meanwhile, brent crude climbed above $127 per barrel. On Thursday, the average price for a gallon of gas at the pump was $3.82 -- 31 cents higher than a month ago.


Hear more about America's dependence on on foreign oil in the following video.


Post continues below.

After initially falling on the reserve-release news, major oil players such as ConocoPhillips (COP), Chevron (CVX), ExxonMobil (XOM) and BP (BP) pared losses after U.S. officials and White House sources called the reserves report inaccurate. Some analysts have speculated in recent weeks that oil reserves would be released due to high prices at the pump and the usual election-year politics. However, as the chart below from The Big Picture shows, a slight increase in crude supplies from strategic reserves generally fails to stem longer-term price rises in oil.




The previous announcement to release inventories from the Strategic Petroleum Reserve came last year on June 24. The release totaled 60 million barrels globally and half of that came from the U.S. At the time of the announcement, oil traded at $91 per barrel. Oil increased to above $97 until the actual release of the reserves on July 15. Even with the added oil supply, oil prices only fell to $88 per barrel by the time the emergency release was completed. Since then, oil prices have found a firm footing above $100 per barrel.


According to the U.S. Energy Information Administration, the U.S. consumes about 19 million barrels of crude oil a day. A 30 million-barrel release was not even enough to cover our energy needs for two days. World oil consumption is around 85 million barrels per day, meaning the previous total emergency release of 60 million barrels was not enough to cover just one day of world consumption. Like before, another release from the Strategic Petroleum Reserve is not likely to have a large or long-lasting impact on crude prices.


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Eric McWhinnie is an editor at Wall St. Cheat Sheet. As of this writing, he did not own a position in any of the aforementioned stocks.
13Comments
Mar 16, 2012 12:32AM
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How can we have an oil shortage in America  when we are shipping it overseas?  Where is the article about this subject??
Mar 15, 2012 8:08PM
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We don't need oil reserves. That is not the problem. The oil companies have reduced the amount of refineries. They control the production of fuel that goes to market. The outflow and distribution are closely monitored by the corporations  so that is always maintained at a scarce level. During the 1970s and 1980s the oil giants bought out the small independents and closed down their refineries. The environmentalists backed them by stating that the world is better off without them.
So there it is for loss of competition and  disappearance of a free market. The tree huggers and government regulators should allow the small competitors to participate in a democratic society; that way we could all benefit. The government also owns some refineries that could be re-activated to the consumer's benefit.
Mar 15, 2012 6:26PM
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Of course it's a joke. A mean one at that. These people will do anything to make themselves look innocent and gain votes. It's all smoke and mirrors and more BS. This country is doomed and there are far too many idiots out here that can't see what's coming.
Mar 15, 2012 8:45PM
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The oil companies have no interest in seeing the price of oil go down, they don't care...its just the bottom line.

  just like REapraysr sez....its exported as fast as it comes out of the ground.

Keystone pipe line just get rid of the excess oil up north, and it will be exported as well.

  Midwest will then see their prices for oil go up

Mar 16, 2012 12:32AM
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isn't there a law preventing people who don't know anything about a subject from posting whiny drivel?
Mar 15, 2012 5:06PM
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Is this a joke? Two days supply. WOW.
Mar 15, 2012 6:50PM
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Not even sure what 'releasing reserves' means.  I'm sure the government doesn't give the gas away.  So they sell it to who...and for how much?  And what did they pay for the oil initially?  Does this mean the government may be making a profit while making a handful of politicians look good...for a couple of days worth of oil?  And don't the reserves have to now be replenished?  Sounds like putting a couple of sponges on the front bumper of a Big Rig to soften the impact in case of a crash.
Mar 15, 2012 8:12PM
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Enact a blockade preventing the export of American oil to overseas markets. It is exported as fast as it is drilled from the ground. 
Mar 16, 2012 8:16AM
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it ain't no joke . . .

it's Big oil . . .

to the behest of the Republican Party !

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this should be read for what it really is; election posturing. obama, again has set us up for a fall. what little protection the reserve offered in the event of an oil turnoff for any reason is being frittered away so obama can get re-elected. instead of making the hard decisions on dealing with iran and its potential nuke ability; he and his english lapdog are playing right into not only the iranians hands, but also china and russia.  according to this chart, we have about 695M barrels of oil. at 20M per day, that is only a 34.5 day supply. it would take longer than that to clear the strait of hormuz it closed done.  am willing to bet that both russia and china have larger reserves than we do plus will get oil from numerous other sources outside of the gulf. has anyone ever heard of venezuela and mexico for examples.
Mar 15, 2012 8:07PM
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It would only amount to a drop in the bucket of demand. The oil and gas company's aren't the least bit interested in seeing prices drop anyway. When prices are this high they're laughing all the way to the bank, just look at the billions rolling in. Greed rules and common sense and decency was flushed down the wells years ago. These guy's just don't care, they have dollars for brains.

Mar 16, 2012 9:07AM
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This is absolutely insane and I can't believe more people aren't going crazy about this.  In July we release almost 5% of our reserve with minimal impact, and now we're going to do it again?    Insanity=doing the same thing and expecting a different result.  Supplies at the all important Cushing facility in Oklahoma have been rising for the past month....there clearly isn't a supply problem.  The Strategic Reserve was created for emergencies....Obama's falling poll numbers really don't count as an emergency in my book.

 

I believe that this action jeopardizes the security of the United States.  Typical politician....penny wise and pound foolish, just kicking the can down the road.  So much for "change". 

 

Full disclosure, I voted for Obama and have regretted it ever since.   

Mar 16, 2012 2:27AM
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When will America finally wake up and realize that we must actually move away from using oil to power our society? I doubt prices will ever get drastically lower again and having to continually use it is a major drag on the economy. Yet, Washington is busy dragging out the research into advancing society beyond this stage.
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