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Tuesday, January 12, 2016

A do nothing Congress? We should be so lucky.

There is a debate, I would assert there should be none, as to whether low oil prices are good or bad for the economy. I'll address that in another post but first a comment relative to the low mentality of our elected leadership in Washington. Notice in the chart below that the country accelerated filling the Strategic Petroleum Reserve in 2000 and continued on that course through 2005. This action drove up the cost of gasoline for consumers but as far as an investment strategy may have been on point. As the price of a commodity rises a wise investors increases his holdings. From 2005 onward with the reserves near 100% of capacity Congress and the Bush and Obama administrations held steady.

Now that crude prices are testing the $30 per barrel handle what does Congress want to do? Sell of course. Actually it's a bit more than want to. The omnibus spending bill mandates that Congress sell at a loss. This is the sort of gimmickry we have come to expect from McConnell, Boehner and now Ryan as they lack the courage to make deep budget cuts yet insist on placating a president who does not care if the country goes belly up. The budget deal sells 58 million barrels of oil from the Reserve to raise around $5 billion of general revenue, ramping up from 5 million barrels per year in 2018 to 10 million by 2025. So beginning 2018 we'll begin selling off the SPR come hell or high water and regardless of the price. It could be that the SPR has become superfulous now that the country produces 9 million barrels a day but it would have been nice to have had that debate.

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