Oil Prices Drop after Bush Move
Oil prices dropped somewhat yesterday after President Bush announced some policy shifts:
Crude oil and gasoline futures fell Tuesday after President Bush gave the Environmental Protection Agency the authority to relax regional clean-fuel standards to attract more imports of gasoline to the United States and to make it easier for supplies to be moved from one state to another. President Bush also said he would halt deposits of oil to the nation’s strategic petroleum reserve until the fall, but analysts said that measure would have next to no impact on crude prices and certainly would not help make gasoline any cheaper. Even the fuel-specification waivers will have a marginal impact, analysts said, given that the main force behind today’s soaring pump prices is the near-record price of crude oil.
So, governmental deregulation helps drop prices but attempts to artificially increase the supply doesn’t? Imagine that.
Still, the drop was modest and there are global factors that will keep prices higher than we have become accustomed to:
“If you have $75 a barrel crude oil, you’re sort of at a starting point of $2.90 a gallon for gasoline,” said Mary Novak, managing director at the economic consulting firm Global Insight. Light sweet crude for June delivery settled 45 cents lower at $72.88 a barrel on the New York Mercantile Exchange, dropping on the heels of a 4.48-cents-per-gallon decline in May gasoline futures, which finished at $2.1291 a gallon.
Analysts said a floor remains underneath oil prices, which are 33 percent higher than a year ago, for a variety of reasons:
– With daily global demand roughly 85 million barrels per day, the world’s oil producers have less than 2 million barrels per day of spare production capacity, and most of that is for Saudi blends of oil that are less ideal for manufacturing transportation fuels.
– Oil traders are nervous about geopolitical tensions ranging from violence in Nigeria to the West’s nuclear standoff with Iran to the move toward greater nationalization of natural resources in energy- rich Venezuela.
– The global economy is expanding, and that means the thirst for oil is only going to grow.
– Speculative investors are piling into energy markets as a way to profit from soaring prices and geopolitical turmoil that could potentially be bad for equities prices.
The article also notes that the internal politics of major oil producers Iran, Nigeria, and Venezuela could affect prices substantially. So, the ability of the White House to have more than marginal short term impact is minimal.