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Thursday, June 23, 2011

Oil reserves released to calm the economy?

A few minutes ago, the Washington Post issued a news alert explaining that Washington was releasing 30 million barrels of oil from the nation’s strategic reserve to help cover the disruption in supply caused by conflict in Libya and other suppliers (click here to see that story). 

Okay, I’ll raise this issue for its relevance in to the topic of consumer trends (not as a politically-motivated conversation):  Isn’t this a different position than we heard earlier this year?

As recently as February, news organizations like CNN were reporting that the unrest in Libya should have little or no impact on the U.S. oil supply—or prices—because the country is not a big supplier to the U.S. and produces primarily the kind of crude that is used in diesel and home heating oil (click here to see that story). 

Implications:  So why did we NOT tap the reserves when I was paying $4.16 per gallon a couple of months ago, but we ARE tapping the reserves today, when gas has dropped to $3.56 per gallon at my service station down the street?

To quote the original George Bush, “It’s the economy, stupid!”

Two months ago, while things felt tenuous, employment reports were good, housing prices had at least flattened, the stock market was steady, and the economic recovery seemed to be (while slow) still making progress. 

Today?  I would interpret today’s move as a sign that the country’s leadership feels like the economic recovery is in a vulnerable state… and they don’t want anything further (like the price of gas) to complicate its progress.

Do consumers feel like they are making economic progress in your area?  Do they feel like the recovery is solid?  Are they (like me) a bit confused by the timing of this decision (to release reserves)?  When it comes to consumers, confusion is often the opposite of confidence.  To restore calm, the best move is to reduce confusion.  (So far, that hasn't happened... at least as far as I can tell.)

Mike Anderson, for the Elm Street Economics consumer trends blog. A service of The Center for Sales Strategy, Inc.

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