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Oil Industry Bailout

Written by Gary North on March 14, 2015

When the federal government wants to bury a story, it releases it on Friday afternoon. This is part of the news cycle. It is too late for Friday evening news. Saturday is not a day for news. By Monday, the world has moved on.

This report came on Friday afternoon.

WASHINGTON, March 13 (Reuters) – The U.S. government on Friday proposed buying buy up to 5 million barrels of sweet crude for the Strategic Petroleum Reserve to replace oil it sold in a test sale last year.

In March 2014, the Department of Energy astonished oil markets with a test sale of 5 million barrels, which some observers saw as a subtle message to Russia after its aggression in Ukraine.

Friday’s plan to buy back the oil was another surprise for markets as a drop in U.S. crude imports in recent years has led to calls to reduce the size of the emergency reserve. But the government is required by law to replace the oil withdrawn from the SPR within one year.

With U.S. oil prices at less than half of what they were last year, the DOE has been able to use funds from last year’s sale to bolster its defenses against unexpected fuel shortages.

Late last year the DOE used some of the funds from the sale to establish the first-ever U.S. gasoline reserve in the Northeast “in order to address some of the resiliency needs in the region made evident by Superstorm Sandy in 2012,” a DOE spokeswoman said.

With the remaining funds, the department is buying back the crude oil.

An energy consultant said the plan signaled the government could expect higher prices soon. “When the government starts buying crude oil, it’s signaling that they’re picking a bottom for the market,” said Carl Larry, director of business development at Frost & Sullivan. “This has to be more of a financial play.”

Washington set up the Strategic Petroleum Reserve after the Arab oil embargo of the 1970s.

That’s what consumers need: higher fuel oil prices. Higher gasoline prices.

This must not be seen as a bailout for the oil companies. Perish the thought.

This should not be seen as more federal control over oil prices. Perish the thought.

This is just one of those things, one of those crazy things.

Continue Reading on af.reuters.com

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