The Oil Gambit: One Day Down, a Long Way to Go

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Traders make bids on crude oil at the New York Mercantile Exchange

Well, it's working.

After having the weekend to contemplate the Clinton administration's debut as a player in the world crude markets, oil traders heard the sound of spigots and responded just as Bill, Al and the Eurozone had hoped. Benchmark Brent crude oil for November delivery fell by 95 cents to $30.30 per barrel in London, and even briefly hit $29.90 — the lowest intra-day level since Aug. 22.

A million barrels a day for a month! That's what the market heard. It's much more than Gore said he wanted, and more even than the 800,000 b.p.d. the OPEC countries — anxious to lose their Most Wanted image — had pledged earlier. Shock value enough perhaps — if only in the Gore-dwarfing size of it — and the administration kicked it up a notch with that old market-making chestnut, the threat of further intervention. "After 30 days, after 30 million barrels," Bill Richardson declared to the talkies Sunday, "the President will make an assessment and see where we are." (No doubt Al Gore's pollsters will be in on that meeting.)

For the administration — which is Messing With Mother Markets but at least had the sense to do it with a significant, supply-altering amount of oil — these next 30 days will likely play out like a poker game. Gore, lucky enough to have the Leader of the Free World on his campaign staff, will have to somehow keep a straight face when he says electoral politics had nothing to do with the decision. He's still on record last winter as being opposed to the idea, and he's still got George W. pointing out that the Strategic Oil Reserve was meant for wars and embargoes, not market fluctuations. And speaking of expediency, there's still the precedent of market meddling by an agency — the Department of Energy — that is institutionally unsuited for it. Oil prices are not the dollar or interest rates, and Bill Richardson is not Alan Greenspan. At least he shouldn't be. Bush might do well to point that out.

And as Greenspan well knows from his interest-rate games, the markets tend to absorb this kind of thing pretty fast. Policy moves get discounted, suspense turns to panic, intentions quickly get buried in expectations. A month is a very long time for traders and investors to sit with this significant a policy shift, and how it all shakes out in the labyrinthine land of puts, calls, options and futures is really anybody's guess. Gore and Clinton have put themselves at the mercy of a mob whose ways they can't possibly fathom, and if they're smart they won't gloat a bit, no matter where oil prices go. Just ask Alan — the boys on the Street are panicky and unpredictable parsers.

Never mind that heating-oil refineries are already at 95-100 percent capacity, and when winter comes those swing voters' heating bills could be as high as ever. It's obvious that the actual efficacy of the move, being as it won't be determined until after November, played very little part in the decision. Those million barrels a day are meant to affect one thing — market oil prices.

But Wall Street isn't the only one watching.

Remember Saddam Hussein? With Russia and France back on their end-the-sanctions high horses, and with Iraq's U.N.-imposed 5 million b.p.d. oil-production limit looking more and more absurd the tighter the crude market gets, the Man from Baghdad is sitting in the catbird seat. With one twist of the spigot (or one move against Kuwait, for that matter) Hussein could instantly neutralize all the White House's work and humiliate the U.S. in the bargain. Think that's not tempting? Clinton, one presumes, is aware of this — and you can bet the oil traders are. For all the political tapdancing and all the careful market-nudging, the tapping of the Strategic Petroleum Reserve has put the U.S. energy supply at the mercy of the last man to seriously disrupt it.

Which, of course, is what the Strategic Petroleum Reserve was really meant for in the first place.