|
The U.S. government reiterated that it could tap its strategic oil reserves in order to safeguard economic growth as surging gasoline prices increase pressure for action.
While longstanding U.S. policy is to release reserves only in the event of a significant and immediate supply shortage, some analysts say the Obama administration may feel compelled to try to tamp down prices that are being fuelled both by outages in Libya and concern unrest could spread in the Middle East.
Reflecting market worries over unrest, crude futures prices were trading in Asia on Monday around their highest levels in more than two years.
Echoing comments made by a number of Obama officials over the past week, White House Chief of Staff William Daley told NBC television's "Meet the Press" on Sunday: "We are looking at the options. The issue of the reserves is one we are considering."
"It is something that only is done -- has been done -- in very rare occasions. There's a bunch of factors that have to be looked at and it is just not the price," he added. "All matters have to be on the table when you go through -- when you see the difficulty coming out of this economic crisis we're in and the fragility of it."
He spoke just before a survey showed the second-largest two-week rise in gasoline pump prices ever. The national average for a gallon of self-serve, regular gas was US$3.50 on March 4, according to the influential Lundberg Survey of about 2,500 gas stations, up 32.7 cents from the Feb. 18.
Congress has pressured the Obama administration to look to the emergency oil supplies as an option to ease consumers' fears over rising U.S. gasoline prices, which are nearing the all-time high of US$4.1124 per gallon hit on July 11, 2008, according to the Lundberg Survey.
Higher oil prices could undermine the fragile U.S. economic recovery and damage President Barack Obama politically as he moves toward a 2012 re-election bid.
The U.S. Strategic Petroleum Reserve holds 727 million barrels of oil, or about 38 days of consumption, and has only been tapped a handful of times since it was created in the mid-1970s after the Arab oil embargo. It was last used in 2005 following Hurricane Katrina.
Thus far the International Energy Agency (IEA) -- which coordinates reserves policy among the world's major energy consuming countries -- has made clear it will rely first on OPEC to fill the void left by the violence in Libya, which has cut off an estimated 1 million barrels per day (bpd) of output.
IEA members South Korea and Japan, among the world's top 5 crude oil importers, have no immediate plans to tap into strategic reserves, sources said.
"There is no concern at all over supply shortages," said an official with Japan's Trade Ministry, which is in charge of the country's strategic oil reserves.
The official declined to be identified because he is not authorised to be quoted by the media.
OPEC powerhouse Saudi Arabia has stepped up production significantly, but oil prices remain high. The risk for markets is that the wave of North African and Middle East protests could spread to major Gulf oil producers, cutting off supplies that would be impossible to make up from other producers.
Despite longstanding U.S. policy on the SPR, there are reasons to believe the reserves could be used more liberally now.
Unlike in 2008, when oil prices shot to nearly US$150 a barrel in a demand-led rally, the rise this year is driven by a loss of supply -- a distinction that could give Obama more latitude to tap the reserves, even though Libya ships only a fraction of its oil to the United States.
In addition, the global economy is in a more precarious state than was generally believed at the start of 2008, prior to the financial crisis.
"Sovereign debt issues need time and growth to resolve. High oil prices threaten that outcome. No leader will want to preside over a recession that they had the tools to avert," said Lawrence Eagles, head of oil research at JP Morgan.
His outlook calls for a possible SPR release if Brent crude pushes materially above US$120 a barrel.
It traded above US$117 a barrel on Monday, up more than 14 percent in the last two weeks. Last week, the price hit its highest level since 2008. U.S. crude futures rose to more than US$106 a barrel on Monday, also their highest level since 2008.
U.S. federal law allows the government to tap the reserve during a national energy supply shortage that raises petroleum prices and could damage the economy. The president has the authority to determine such an emergency.
While the reserves could help make up for lost supplies, it is unclear how effective they would be in tempering fears that unrest could spread to other, bigger producers including Saudi Arabia, where security forces have detained at least 22 minority Shi'ites following protests last week.
U.S. Treasury Secretary Timothy Geithner last week played down risks to oil supply, but also reminded lawmakers of the emergency stockpile.
"If necessary, those reserves could be mobilized to help mitigate the effect of a severe, sustained supply disruption," Geithner told the U.S. Senate Foreign Relations Committee.
But there has been growing support among Senate Democrats for tapping America's emergency oil supply.
U.S. Energy Secretary Steven Chu on Wednesday had ruled out releasing oil from the reserve, saying ramped-up oil production in Saudi Arabia should lower the crude price.
"We're hoping market forces will take care of this," he added.
" GAO recommending to replace U.S. dollar bill with a 'coin' .."..
" to make it work, the government would have to stop producing notes to leave no alternative " ...
A new report by the U.S. Government Accountability Office recommends replacing the U.S. dollar bill with a coin similar to Canada’s loonie. Friday’s report, the latest of several, points out the billions of dollars the U.S. would save, although Americans aren’t all that keen on the idea.
The suggestion is that Congress do it anyway, as Canada did despite public opposition. Americans would soon get over it, the GAO says.
“In Canada and the U.K., the public also preferred low-denomination notes to coins, but the governments nevertheless switched from notes to coins to achieve financial benefits,” the report says. “While the public initially resisted these transitions, opposition dissipated over time with no alternative to the note.”
This marks the fourth or fifth time in about 20 years that the GAO has reported on the issue, finding each time that the government would save money. (No doubt that, by this point, those savings would be eroded by the costs of the never-ending studies.)
The GAO found that, because coins are more durable that paper and don’t need to be replaced as often, the government could save about $5.5-billion over 30 years. But to make it work, the government would have to stop producing notes to leave no alternative.
There are actually five different $1 coins in the U.S. now, including the Eisenhower coin, the Susan B. Anthony coin, and the Sacagawea coin, along with the Presidential and Native American coin series. Because of “limited public demand,” the Federal Reserve has more than 1 billion $1 coins sitting in storage.
Some interesting tidbits from the findings:
“The federal government experiences a financial gain when it issues notes or coins because both forms of currency usually cost less to produce than their face values.”
-
Canada estimated the conversion to the loonie in 1987 would save $175-million over 20 years, but later found it saved $450-million between 1987 and 1991 alone.
-
“Among the rationales for replacing notes for coins cited by foreign government officials and experts are the cost savings to governments derived from lower production costs and the decline over time of the purchasing power of currency due to inflation.” The U.S. dollar, for example, now has the buying power of a quarter in 1975.
-
“It is common for people to take coins out of their pockets and store them at the end of each day rather than retain them in their wallets as they do notes, for use the next day. These factors cause coins to circulate with less frequency than notes.”
-
“Senior officials at the Federal Reserve and Mint told us the increased circulation of $1 coins could increase the risk of counterfeiting, and senior Secret Service officials told us that counterfeiting of coins is an ongoing problem in the U.K. ... In Canada, however, counterfeiting is minimal.”
Want to manage currency risk and increase revenue? Learn more about Risk Management
| 
