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  Obama's desperate SPR oil play
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ContributorImperator 
Last EditedImperator  Jun 24, 2011 02:02pm
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CategoryAnalysis
AuthorSteve Hargreaves
News DateFriday, June 24, 2011 08:00:00 PM UTC0:0
DescriptionNEW YORK (CNNMoney) -- Four reasons are emerging for President Obama's surprise decision Thursday to release 30 million barrels of oil from the nation's strategic reserve -- economic stimulus; a looming supply shortage; a wake up call to OPEC; and a warning shot to speculators in the oil market.

The move was done in conjunction with other developed nations and will ultimately put 60 million barrels of fuel on the market over the next 30 days. Whether it will achieve any of the desired effects is anyone's guess.

Oil prices sank over 4% Thursday, but as of Friday were down just slightly at $90.61 a barrel.

Economic stimulus: Many analysts are referring to the release as QE3 -- a reference to moves taken by the Federal Reserve over the last several months to bolster the economy, known as quantitative easing.

The fed has done two rounds of quantitative easing and was considering a third, although politically that has become more difficult. The decision to flood the market with oil in an apparent attempt to lower prices is seen as a backdoor way to stimulate the economy.

"The impact of relatively high gasoline prices -- despite the recent pullback -- represents a big drag on consumer spending, particularly in the US," Greg Priddy, a global energy analyst at the the political risk consultancy Eurasia Group wrote in a research note Thursday. "The reasoning behind the decision represents the use of strategic oil reserves as a means of macroeconomic stimulus."

But economists were split on whether the release is large enough to lower oil prices enough to stimulate the economy.
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