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Oil release: Obama and Cameron in cahoots?

March 16, 2012: 10:52 AM ET

White House Photo/Pete Souza

The price of crude oil took a nosedive on Thursday after Reuters reported that President Obama and his British counterpart David Cameron had agreed to a release of strategic oil reserves that would take place within months.

The White House later denied that such an agreement exists, but did say that Obama and Cameron had discussed rising crude prices.

For the United States, such an agreement would mean tapping the Strategic Petroleum Reserve, a strategy that has been used only a handful of times since 1975, when the 727 million barrel safeguard against oil supply shocks was established.

What would the United States get out of the deal? Crude prices could fall, especially as speculators are driven from the market. A reduction in crude prices would translate to lower prices at the gasoline pump.

And, naturally, lower gasoline prices would be nice for Obama as Election Day approaches.

Should the administration release reserves, as some have suggested, it would have a difficult time arguing that the move was not politically motivated.

The Department of Energy says the SPR is meant to be used "should the United States be confronted with an economically-threatening disruption in oil supplies."

That's the rationale the administration used when it released 30 million barrels from the SPR last year.

"We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery," said Energy Secretary Steven Chu.

Reserves were also released at the direction of the president after Hurricane Katrina struck the Gulf Coast in 2005 and during Operation Desert Storm in 1991.

Each case included a major disruption in global oil supply.

The market is tight today, but there is no major supply disruption to speak of.

The real driver of rising prices is geopolitical risk associated with Iran. Concerns over the country's nuclear program have sparked a new round of sanctions by Western countries, and Iranian retaliation could put a major kink in global crude supply.

But supply isn't being hit now, making any preemptive release look like an effort to keep the economy on solid footing during an election year.

Conservatives and business groups are already sensitive to this eventuality.

Even last year's release after unrest in Libya sparked criticism. The U.S. Chamber of Commerce, a powerful business lobby, called the move "ill-advised."

"Our reserve is intended to address true emergencies, not politically inconvenient high prices," Karen Harbert, CEO of the U.S. Chamber of Commerce Energy Institute, said in a statement issued in June.

And the American Petroleum Institute, another industry group that has clashed with the Obama administration over energy policy, labeled the decision "reactionary" and called for a long-term solution.

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About This Author
Charles Riley
Charles Riley
Reporter, CNNMoney

Charles Riley lives and works in Hong Kong, where he covers markets, economics and other high-impact stories across Asia. He previously worked for CNNMoney in New York and CNN in Washington. He tweets @CRrileyCNN

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