Oil reserves tapped to cut costs at the pump
An oil well sits in the middle of a corn field near New Haven, Ill. Higher levels of ethanol for gasoline are to be allowed in newer cars.
JEREMY HOBSON: Now let's get to oil. The announcement just came in from the International Energy Agency. Twenty-eight countries will release 60 million barrels of oil from strategic reserves over the next month. Half of that will come from the emergency reserves here in the U.S. Oil prices have dropped about 5 percent on the news. In New York trading right now, a barrel will cost about $90.
Diane Swonk can't be with us today. We're joined instead by Adolfo Laurenti. He's deputy chief economist with Mesirow Financial. And he's with us live. Good morning.
ADOLPHO LAURENTI: Good morning.
HOBSON: Well Adolfo -- are you surprised by this announcement?
LAURENTI: Yes. I am surprised. I have to say it came out of the blue, nobody was expecting a move, especially in these final weeks in which we have seen some of the tension on oil prices to ease. Saudi Arabia apparently was committing to increase production over the summer. Tensions in the Middle East are easing. So this was not in the cards and this morning was a big surprise.
HOBSON: And remind us how import the price of oil is to the economic recovery.
LAURENTI: It's important because one of the missing ingredients of this recovery is been consumer spending. Higher gasoline prices -- the result of higher oil prices -- really works as a tax on families. So you spend more to fill the tank, you have less to spend on anything else. And this has really been a key factor in this disappointing recovery during the past several months.
HOBSON: And Adolpho I can't help but notice this comes a day after the Fed decided no more monetary stimulus. Do you think this is sort of an energy stimulus?
LAURENTI: You know, this is a very good way to put it for good and for bad. For good, because as I mentioned it goes straight into the pockets of American families. For bad also because this seems to be a temporary, short-lived solution. Remember, the United States consumes 20 millions barrels of oil per day. This is a release of 60 million over the next month. So it's barely affecting like, the 10 percent of our consumption in the three days we will be over. So this is really not the type of long-term solutions both to our economic and our energy prices.
HOBSON: Adolfo Laurenti, deputy chief economist with Mesirow Financial.