This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Dicker: How to Play the Potential SPR Release

Since the really big run in crude oil and gas prices began in the spring of this year, I have been convinced that a release of the strategic petroleum reserve has been coming, but maintained that its release would be politically timed in an election year. I believe that time has come.

All of the signs have fallen into line: Not only have oil prices risen almost $20 a barrel since the lows of June, but gasoline is up almost $0.80 per barrel, and is now lapping again at the shores of $4 a gallon. The cover for a release from the Strategic Petroleum Reserve (SPR) has most conveniently been given by Hurricane Isaac, which appropriately made landfall eerily close to the same area of the Gulf Coast where Hurricane Katrina hit almost exactly seven years ago to the day -- although thankfully it did not do nearly as much damage.

That won't matter. Gas prices have again risen far enough to be a potent political weapon against President Obama and despite fundamental facts to the contrary; the SPR has proven to be a potent weapon in defusing that weapon.

Here's why: As anyone who has read my columns or my book knows, most of the premium in oil is held in the upwards financial pressure that is placed on it by hedge funds, index investors, ETFs and algorithmic traders. Fundamentals of real supply and demand are overrun by the financial inputs that have been placed into the oil market for the past 10 years. Removing some of that "long money" can drop oil prices far more quickly and more effectively than any drilling program or demand drop can -- or historically has.

You want proof of this? Just look at Monday, when the G7 statement asked for higher output and an SPR release -- a rumor alone of a release. Almost immediately, the crude market shed almost $3 a barrel: long money running for the hills.

Fundamentally, we know that a 30-million barrel release can't mean much in a country that burns 24 million barrels a day. This is a case where the threat of a release is almost better than an actual release. But without any action, there's nothing more than "cry wolf" psychology to rely upon. That's why the plan for an SPR release, in my opinion, has to contain three parts: First, threaten a release (which the G7 statement and Jay Carney's White House statements effectively did on Monday). Second, follow through with a release (with international coordination if possible). And third, again threaten further releases until you get the desired flight from the oil trade. And you will get it. Both releases in 2005 and 2011 ultimately had their desired effect in lowering crude and gas prices, if only temporarily.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free


Chart of I:DJI
DOW 17,661.47 -89.44 -0.50%
S&P 500 2,053.33 -10.04 -0.49%
NASDAQ 4,736.4810 -26.7430 -0.56%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs