Publications: Notes at the Margin

The SPR Popgun; European Tariffs Could Threaten US Oil Producers; Suing OPEC (July 23, 2018)

 

Several commentators have suggested that oil from strategic reserves could be released to counter the impacts of renewed sanctions on Iran. The head of the International Energy Agency, for one, broached the idea at a private dinner. However, we explain here that, should a release be authorized, the only oil that would come on to the market would be from US strategic stocks. Oil held by other IEA countries is controlled by private companies. Any oil they released would have to be replaced it later. Given current market conditions, they would not participate, just as they did not take part in the 2011 release. Meanwhile, an oil release from the US Strategic Petroleum Reserve would lead to increased US product exports rather than the desired lower fuel prices. Gasoline prices would decline little if any, and, as a recent report suggests, the absence of a price decline would have a large negative impact on Trump supporters.

 

On the trade war front, Donald Trump has threatened to impose a twenty-five percent tariff on Europe’s auto exports to the US despite widespread, almost unanimous opposition from the US auto industry. If this tariff goes into effect, European officials will retaliate. Energy imports from the United States could be a primary target. While US natural gas producers would probably not be affected, the energy tariffs would drive a large wedge between the international crude price, measured by Dated Brent, and the price received for US crude exports. US oil producers, like our farmers, would become collateral damage in the trade war.

 

In response to rising crude oil and gasoline prices, the US Congress is considering legislation that would allow price-related suits to be filed against OPEC by the US government or US citizens. This author is the only economist—and maybe the only individual alive—to have participated in the two previous litigations against OPEC: the 1979 suit by the International Association of Machinists and Aerospace Workers (IAM) and the 2000 suit by Prewitt Enterprises. I offer my thoughts on those efforts. My conclusion is they have the same chance of success as Don Quixote did tilting at windmills.

 

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