NEW YORK ( TheStreet) -- It's become a fad for European leaders to get the word out about strategic petroleum reserves being tapped to cut off rising oil prices, while hinting that the U.S. is really the mover and tapper behind the plan. First, U.K. officials leaked to Reuters a few weeks ago a plan they said was being hatched by the U.K. and U.S. to release strategic petroleum stockpiles, a leak the White House quickly denied. This week it's been France's turn. On Wednesday -- and for the second time in a week -- French Industry Minister Eric Besson went on record to say the country would welcome releasing emergency stocks. This came a day after the White House went about as far as it will go in the coy game it is playing when it comes to strategic oil reserve politics, when an official from the U.S. Energy Department said at a hearing it was considering a release from the U.S. Strategic Petroleum Reserve. The expectation is for the U.S., the UK, Japan and France to lead a potential release of their strategic oil reserves in the next three months, according to a report in the Financial Times. Meanwhile, the International Energy Agency, based in Paris, which has previously coordinated strategic oil releases, sticks to the actual supply/demand scenario in arguing that the market does not need more oil. "It seems this drumbeat is growing until it becomes deafening," wrote Summit Energy analyst Matt Smith. Crude oil sold off sharply on Wednesday morning, with Brent crude down by more than 1% and WTI crude down by 2%. There were some ancillaries to the French comments that may have helped drive crude oil lower: The American Petroleum Institute and Department of Energy's Energy Information Administration weekly reports showed a build in U.S. crude supply. The DOE reported supplies grew by 7.1 million barrels, or 2.1%. There were also reports that Iran will meet with representatives from six countries to discuss its nuclear program in mid-April. It makes sense for European leaders to lead the strategic oil tap march -- without coordinated action from the European Union, as many as 26 nations, there is little the U.S. can alone do to drive down global oil prices. The last time strategic reserves were tapped over a period of months in 2011, it worked to drive prices lower,
sort of. The API and DOE reports don't tell the market something it doesn't already know, though. In fact, the irony of U.S. crude supply/demand is that it's been running near historic high levels since last year. For the first time since 1949, the U.S. was a net exporter of crude oil in 2011. The latest weekly build put U.S. crude stocks 0.7% lower than the year-ago level, a relatively small difference. In fact, the latest crude inventory report shows a market in a normal range in terms of supply, and that is one more argument for critics who contend that tapping the SPR to put more supply onto the market is not addressing the issue at hand.
Dovish talk from Iran was timed nicely for a crude oil price speed bump. However, few traders would place short bets on resolution to the geopolitical tensions. The Iran crisis remains the single-greatest upside lever in the oil trade, as well as a risk premium that could erase $20 from the price of crude if all the bluster fades away. It's all the
fault of speculators, after all, isn't it, and strategic oil reserves can only slow, but not stop, oil speculation. In fact, parsing all the crude news, a technical trade sending oil prices back down from nearing the $108 level closer to the $105 level might be the real action on Wednesday. The recent market trade on crude oil prices has put a dent in the conventional wisdom that there are always three trades: short, flat or long. Now there are only two trades. "I wouldn't be short crude oil overnight unless I could sleep with one eye open," said money manager John McClane of Mobius Management, who runs an energy portfolio. McClane's opinion cuts through the noise involving loose-lipped politicians banging on bongos and foreign policy analysis: "I tune out all the noise like Saudis and the Strategic Petroleum Reserve and base my trading decision on price and patterns," he said. Last Friday, WTI crude had a $2.50 move up in 15 minutes when it was reported that Iran may have cut back on its monthly production of oil by 300,000 barrels, which represented 14% of its production. "Close to $3 bucks on that?," McClane said. "That led me to believe that people need to own this. If we were talking about shootings and dropping bombs or a Saudi pipeline exploding that's a different story. Three-hundred thousand barrels tightens the market, but the message I get is someone really wants to own crude here, which goes back to it being better to err on the bullish side." Previous to the Iran production cut report, comments from the Saudis about shoring up the crude market caused a now typical short-lived downturn in crude, suggesting the frustration the oil powers of the world face in limiting upside as much as proving their influence in the market. For the technical trader, trading around these bull runs in crude, the belief persists that crude oil will fail at a higher number before it fails at a lower one, meaning it will be tough for crude to break through $108. But that doesn't imply it will fall below $103, another number which traders eye. Smith added in an email, "SPR chatter creates a move to $105. There is support here, however, and it would take further developments on the Iranian front to push prices on from here. The market is coming to terms with a likely release from the SPR as we get into the midst of driving season." "Any time we fall sharply and it looks like we will take out the $103 level, selling just stops," McClane said. Reading the lips of European politicians may remain less important to the short-term support for crude oil prices than watching the eyes and actions of the traders. Nevertheless, while keeping an eye on the crude market, you can't help but hear the drumbeat. -- Written by Eric Rosenbaum from New York. >To contact the writer of this article, click here: Eric Rosenbaum. >To follow the writer on Twitter, go to Eric Rosenbaum. Follow TheStreet on Twitter and become a fan on Facebook.