The June 16-30 issue of Counterpunch ran a piece I’ve been meaning to note.  “How Bush has pushed up oil prices,” by economist Michael Hudson.  The first sentence: “The American people are being misled about the cause of soaring oil prices, and deceived about how easily the Bush administration could cut the oil price in half simply by following the policy that Bush Sr. did at the outset of the First Iraq War.”  At the outbreak of the Kuwait war, the USA released oil from the Naval Petroleum Reserve onto the open market; in consequence, the oil price remained generally stable throughout the August 1990-February 1991 period.  By contrast, for the last several years the Naval Petroleum Reserve has continued to buy oil.  A passage is worth quoting at length:

At the just-ended 10th Post-Keynesian Economic Conference at the University of Missouri in Kansas City, my friend Paul Davidson (who, like me, used to work for Continental Oil and has a long oil background) pointed out that if the Bush administration did want to lower oil prices, all it would have to do is sell 10% of the oil reserve on the forward oil market.  Right now, he points out, the forward prprice of oil is higher than the spot price.  That means that buyers and sellers think the the price will rise, and hence that it pays to hold onto oil to sell later rather than to sell now.  But if the US Naval Petroleum Reserve would start selling the oil it has been buying since the start of the Iraq War, this supply would abruptly stop the price rise.  Speculators would dump their positions, and, in Prof. Davidson’s estimate, oil prices would fall back to about $90. 

Of course,  some parts of this three month old story are now dated.  Oil prices are falling now.  But the Naval Petroleum Reserve is still buying oil. 

Here is an article Davidson wrote for the July/ August issue of Challenge in which he explains his views on this summer’s oil prices.

Here‘s the website of the 10th International Post-Keynesian Conference.  Davidson’s paper there was called “The Sub-Prime Crisis, Securitization, and Market Failure as Analyzed by Keynes’ Liquidity Preference Theory vs the Efficient Market Theory.”  That title doesn’t sound like anything to do with the Naval Petroleum Reserve.  It sounds like what Hudson is citing is a side conversation he and Davidson had at the conference. 

http://www.generaltheory.org/

http://econ.bus.utk.edu/faculty/davidson/challenge%20oilspeculation9wordpdf.pdf

http://www.challengemagazine.com/

http://www.counterpunch.org/