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John Licata: Tapping Oil Reserves 'Premature'

By    |   Thursday, 23 June 2011 05:07 PM

The decision by the U.S. government, in conjunction with the International Energy Agency, to release 60 million barrels of oil from U.S. and global strategic reserves is a little premature in that global demand doesn't warrant such a move, says John Licata, chief commodity strategist at Blue Phoenix Commodities,

The Department of Energy and the IEA say the civil war in Libya is siphoning oil supplies out of the global marketplace.

Economics and politics, however, may be playing a role.

"I'm really questioning the timing of this, especially on the heels of hearing Ben Bernanke speak of slowing growth and how the Fed is going to be monitoring policy over the next couple of months. I really just think that maybe the move was slightly premature," Licata tells Newsmax.TV.

Story continues below video.

Hurricanes often threaten to disrupt oil production, which could merit such a move.

Former President George W. Bush tapped reserves when Hurricane Katrina rattled the U.S. Gulf of Mexico coast.

But hurricane season has just begun in the North Atlantic basin, with no storms on the horizon and peak season is still several months away.

"We are still very early on in the hurricane season, so it's too early to say if we are going to compensate for any production coming offline due to any storms. But I think that we are not really seeing demand outweigh supply to the point that the events of Libya are certainly going to justify the move," Licata says.

The International Energy Agency, which includes the U.S., said Thursday it will release some of its emergency oil supplies to stave off a possible spike in energy prices that could strain the global economic recovery.

The IEA, based in Paris, will make 60 million barrels available over a 30-day period. Half of that will come from the U.S. Strategic Petroleum Reserve, which currently holds 727 million barrels of crude.
The SPR was last tapped in 2008 as oil rose to a record $147 per barrel.

The move comes in wake of months of concerns that oil prices are pushing up food and other prices.

Meanwhile OPEC, the cartel of oil-producing nations, meets regularly to discuss oil prices and their effect on the global economy and decide to raise, cut or hold production in the interest of member nations.

Recently, disputes have arisen among OPEC members, with one camp led by pro-U.S. Saudis who favor raising output to lower prices and getting the global economy moving so buyers will come back and demand more oil.

Another camp, led by Iran, favors curtailing output to raise prices.
Don't expect OPEC to fade away just yet, Licata says.

But do keep an eye on non-member producers such as Russia, who are more than happy to drill and sell oil.

"I do think the credibility of OPEC was shaken at their recent meeting. I think the market certainly lost confidence in OPEC and I think that non-OPEC [countries] such as Russia are trying to add more supply into the marketplace to capitalize on rising prices despite what we are seeing today. I think that makes OPEC less significant on the global stage," Licata says.

Other cartels could pop up as well, including one for fuels besides crude.

"There has been talks of a gas group forming, a new form of OPEC for the modern day society."

Going Nuclear

The U.S. is home to abundant natural gas supplies and should tap those resources in an effort to wean itself off foreign crude.

But the country really needs to dismiss fears that the nuclear energy is dangerous; it's a clean source of energy that will be needed even more now that a growing number of automobiles will run on electric power.

"We still need to move our addiction away from crude oil," Licata says.
"To me, nuclear can create jobs — it's the cleanest for of energy that we can move forward with."

Media reports often sensationalize the disaster at the Fukushima power plant in Japan, and countries such as Italy and Germany are opting to abandon plans to develop nuclear energy.

That's a mistake in Europe just as it's a mistake here, Licata says, adding that incidents at U.S. nuclear power plants are rare.

"The events at Fukushima were a natural disaster; it was not industry specific. And I think that most people had a fear factor related to nuclear that was certainly escalated due to media sensationalism." Licata says.

Italians recently voted in a referendum against developing nuclear energy, which Licata says may have been driven by emotions due to the proximity of the Japanese disaster.

If anything, it would have weaned that country off its dependence on foreign energy.

"Italy gets more than 86 percent of its energy sources from outside of Italy. So to me this makes them much more dependent on Libya and Algeria for gas supplies that to me make Italy much more vulnerable as opposed to some of their allies."

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The decision by the U.S. government, in conjunction with the International Energy Agency, to release 60 million barrels of oil from U.S. and global strategic reserves is a little premature in that global demand doesn't warrant such a move, says John Licata, chief commodity...
Thursday, 23 June 2011 05:07 PM
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