Streetwise Professor

July 1, 2011

If the Decision Makers Didn’t Expect This, They Shouldn’t Be Making the Decisions

Filed under: Economics,Energy,Politics,Regulation — The Professor @ 8:50 pm

Bloomberg reports that much of the oil being sold out of the Strategic Petroleum Reserve is being put right into private storage. Which is exactly what the figures in this post showed would happen.  Indeed, the only thing that is preventing more oil from moving into private storage is the fact that market participants now anticipate that it is more likely that oil will be released in the SPR in the future, thereby reducing the returns to private storage.

I can’t believe those that made the decision to release the oil from the reserve didn’t anticipate this would happen.  Perhaps they didn’t estimate the magnitude properly, but that wouldn’t be surprising given that this depends in large part on how market participants expect the SPR will be used in the future.  If they actually thought all of the oil would be consumed over the next month, thereby causing prices to crater, they have no business making such decisions.

The best part of the article is the bonus description of the inane consequences of the Jones Act, which prevents the use foreign-flag vessels to ship oil between US ports.

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  1. [...] If the Decision Makers Didn’t Expect This, They Shouldn’t Be Making the Decisions- via StreetWise Proessor- Bloomberg reports that much of the oil being sold out of the Strategic Petroleum Reserve is being put right into private storage. Which is exactly what the figures in this post showed would happen. Indeed, the only thing that is preventing more oil from moving into private storage is the fact that market participants now anticipate that it is more likely that oil will be released in the SPR in the future, thereby reducing the returns to private storage. [...]

    Pingback by Simoleon Sense » Blog Archive » Weekly Roundup 134: A Curated Linkfest For The Smartest People On The Web — July 3, 2011 @ 3:36 pm

  2. [...] is not surprised that traders might have been interested in speculative buying. He opines on his blog that “if the decision makers didn’t see this coming, they should not be making decisions”. [...]

    Pingback by Speculators unburned — July 4, 2011 @ 12:42 pm

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