Don’t expect the US government to shore up oil prices anytime soon

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oil and stock market
Oil performance in the commodity market. 3d rendered Illustration.
oil and stock market
Oil performance in the commodity market. 3d rendered Illustration.

Make no mistake about it-extremely low oil prices can harm the US economy. It’s fragile jobs recovery can be put into a tailspin as more and more oil industry and oil-related jobs get cut in key oil-producing states. Job cuts by oil sector players can have a multiplier effect in the local economies where these companies operate. These job losses can drag down the health of the overall economy. Of course, this negative jobs picture assumes the greater US jobs market doesn’t firm up or the increased consumer spending made possible by cheaper oil doesn’t produce enough new jobs. Given this increasingly likely possibility, one would think Obama administration officials would be monitoring oil prices closely with one finger on the button of price intervention. Don’t hold your breath.

According to Ben Hochstein of the US State Department’s Bureau of Energy Resources, the US government has no immediate plans of stepping in to modulate the price of oil. Interviewed during an Abu Dhabi oil conference Mr. Hochstein says that while the US does have ‘mechanisms with global partners’ should anything ‘extreme’ happens, the US’ policy is to let the market sort out the price of oil. Hochstein traces the current low price of oil to simple oversupply and decreased global demand.
In the highly unlikely event the US does move to bolster oil prices, what it can do? Well, for one, it can buy up a huge amount of oil and simply store it. The US federal government has a sizable oil reserve to meet potential emergencies. By spending billions soaking up excess oil supply and not releasing it to market, this can reduce the total global supply and firm up prices. Again, we’re talking about what the US can do-not what it will probably do. Accordingly, with no state intervention-based relief in sight, expect oil prices to keep declining.

 

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