"Here we are again." That's what President Obama said to me at the White House on Wednesday.
Almost a year ago, at a meeting on June 8, 2011, with a group of financial journalists, I asked President Obama if he was considering releasing oil from the Strategic Petroleum Reserve as a way to lower oil and gasoline prices. At the time, oil was about $95 per barrel and gasoline had recently hit $4.00. The president demurred, implying it would be a sign of panic and wouldn't do all that much to change the dynamics in a complicated global industry. Fifteen days later, Obama ordered the release of up to 30 million barrels from the SPR into the system for refining. Gas prices fell, but the release of what amounts to about 4.5 days of U.S. crude production didn't have much of a long-term impact.
On Wednesday, at another meeting with a group of financial journalists, I asked a follow-up question. With gas this high, would he consider releasing crude from the SPR again? And what had the White House learned from the last release? In response, Obama channeled energy analyst and oil expert Daniel Yergin, giving a brief dissertation on oil prices.
"As I've said publicly, there are no silver bullets when it comes to gas prices," Obama said. "Everybody here understands oil is a world commodity." He noted, correctly, that U.S. oil production in 2011 was at its highest level since 2003, that the economy has become more efficient, and that imports now account for less than 50 percent of total usage. "We've used less oil each year that I've been in office."
Obama argued that two significant global factors beyond his control — or any president's control — are helping to push oil prices higher. First, "a little over a million barrels a day [in production] that have been taken off the market in dribs and drabs." He said that Sudan's production is off by a "couple hundred thousand barrels, Yemen maybe a hundred thousand. Recently the Kurds took 50,000 to 70,000 off the market." None of these moves is significant on its own, he said, "but cumulatively we have a significantly larger amount that's been taken off than is typical." Second, Obama argued that prices are higher in part because of the "risk premium that folks are looking at because of possible conflict in the Middle East." Translation: Instability in the region in general, and concerns about a potential conflict with Iran in particular, are making oil more expensive.
The president found a bit of sunshine in the mix. Europe's congenital weakness is acting as something of a brake on oil prices. "So, if it weren't for those two other factors, we would potentially be in a position where the U.S. economy could grow without gas prices being driven up significantly." Of course, that's sort of like me making reference to my 20-inch vertical jump and chronically dislocating right shoulder and saying that "if it weren't for those two other factors, I'd potentially be in a position to play starting forward for the Oklahoma City Thunder." Production slips and Middle East tension are likely to be near-permanent factors.
So given the stubborn persistence of high prices, I asked, why not consider releasing some more crude from the SPR? It would provide some measure of relief to consumers at a crucial time — in 2012, the summer driving season and the political season conveniently coincide. And in recent weeks, there's been some discussion about a coordinated release from petroleum reserves in the U.S. and Europe.
"We're looking at all of this very carefully," Obama said. "I don't engage in a SPR release lightly. You have to factor in how effective it's going to be, how much participation we get internationally," and whether the major producers will support it. "So I will not be making any news today but I appreciate the effort to try to make some news."
If past performance is any guide to future performance, this can only mean one thing: more oil to be released in time for the summer driving season.
Daniel Gross is economics editor at Yahoo! Finance.
Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com.
His next book, Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy, will be published in May.