|Strategic Petroleum Reserve politics give new meaning to the Keynesian market wisdom that sometimes the pump needs to be primed.|
NEW YORK ( TheStreet) -- In a week that saw the national average price for gasoline hit $3.83, Federal Reserve chairman Ben Bernanke acknowledge oil inflation, and Congress shoot down amendments to a major transportation bill that would have sought a boost to alternative energy and natural gas transportation, loose-lipped British politicians were the ones that set the tone for the oil market. A Reuters report mid-week quoting anonymous British sources as saying the country had reached with the United States to tap strategic petroleum reserves was followed by a swift White House denial that such an agreement existed. Let's assume it exists ( Reuters has only added to rather than recanted its report since). Let's say it's only a matter of timing and it's all about politics. That's what the market seems to think.
In fact, it's easy to imagine how both the anonymous sources and White House spokesman were telling a different version of the same truth as British Prime Minister David Cameron took in some NCAA basketball tournament action with President Obama. As basketballs took flight in tip-offs at arenas all over the U.S., an important political decision during a crucial election season may have been preceded by floating a trial balloon. The British may have leaked the news to the press to see how the market would react, while the White House gets to keep the oil speculators on their toes by turning around and denying it. "The decision has probably been made if it was discussed," said Summit Energy analyst Matt Smith. "They are paving the way for the release." Beyond the political back and forth, there's the reality of the oil market. This is the important arbiter, and many of the data points don't support a tapping of the U.S Strategic Petroleum Reserve (SPR). U.S. gasoline demand is down 7.2% from last year. Total demand for crude-oil based products is down 5%. Meanwhile, crude stockpiles have reached a six-month high. In terms of global oil market fundamentals, Syrian and Sudanese supply declines are not immaterial to the market tightening, and Saudi production is running at a 30-year high. Add in the geopolitical tension with Iran and elevated oil prices can be justified. It's no longer just about the oil market speculators who President Obama called out last year.