Announced at the end of the week to minimize news coverage, President Obama has permitted oil drilling activities to move forward, and an expansion of drilling sites within the United States.  The expansion includes the East Coast and Alaska. This after over a year of halted drilling has endangered our future pipeline of domestic crude, creating an impending shortage in the next couple of years if heavy investments are not promoted by the major oil companies operating in the United States. The decision too, comes at an interesting turning point in the oil markets with recent down turn in crude to most likely impact gasoline prices 1-2 months from now.

Focusing on the price of gasoline, it’s general market knowledge that there is a lag time between swings in the price of crude vs. the price of gasoline.  One to two months could be the range in this case.  Recently, crude rose to around $120 a barrel, and has now fallen below $100.  A number of factors have contributed to this trend, much of which was assembled into this eventuality by Goldman Sach’s back in mid-April.

Now that prices are falling, and bearish fundamentals for the near term, why is it that Obama has a change of heart for expanded drilling (actually, reopening of drilling)?  Answer: the lag in price translation from crude to gasoline spot.

Many Americans do not watch the price of crude day to day, and are only alerted of major moves, or milestones reached.  They are, however, very mindful of the price of gasoline paid multiple times a week, especially for commuters.

How are the two events related? The potential price relief for consumers in the next few weeks, will be correlated by the administration to their actions taken over the weekend.  Rahm Emanuel said it himself, don’t let a crisis go to waste:

So the BP spill, coupled coupled with high oil prices, and now add in the sharp sell-off?  Sounds like good opportunity to first appease the extreme left that wants to stop all domestic oil production, and now a chance to take credit for an impending price drop at the pump.

What is the intention here? Reelection? Perhaps. Playing all sides? I wouldn’t be surprised.

The prelude to this move was the testimony provided by Oil executives last week before the Senate.  Liberal Senators wanted to seem tough on the “unfair” oil companies who are raising prices (sarcasm here, no one company can set the price of a market traded commodity).  I wonder if either the Senators or the oil executives even knew how the Obama administration was trying to use them as pawns in their reelection bid. Quite the manipulation by insiders to promote an election bid.  If this was the stock market, one may say they were guilty of insider trading!