President Barack Obama sought to assure markets and the public that the U.S. economy can withstand any disruption in Libya’s oil production caused by the revolt against Muammar Qaddafi’s regime.
Obama and members of his administration said the ability to tap reserves held by major economies and the capacity of other oil-producing countries to pump more crude will blunt the impact from the loss of shipments from Libya, which accounts for about 1.8 percent of global supply.
“We’ll be able to ride out the Libya situation, and it will stabilize,” Obama said yesterday as he joined the first meeting of his advisory council on jobs and competitiveness at the White House.
Crude oil retreated from the highest level in 29 months after the statements by Obama and members of his administration and assurances from Saudi Arabia and the International Energy Agency that they can compensate for any loss of Libyan production. Oil for April delivery declined 82 cents, or 0.8 percent, to settle yesterday at $97.28 a barrel on the New York Mercantile Exchange. The contract touched $103.41, the highest intraday price since Sept. 29, 2008. Futures are up 22 percent from a year ago.
Treasury Secretary Timothy Geithner, who also attended the advisory council meeting, said that the world’s major economies could dip into strategic reserves “in the event that we were faced with some particular risk of sustained supply disruption.”
In addition, he said, “there’s a fair amount of excess capacity in parts of OPEC” that will make it less likely that the market will build up higher prices over time.
The comments by Obama and Geithner were part of a concerted effort by the administration to assuage concerns that the unrest across the Middle East and North Africa will cause the U.S. economy to stumble as the recovery from the worst recession since the Great Depression is taking hold.
Earlier in the day, Austan Goolsbee, chairman of the White House Council of Economic Advisers, said that the U.S. economy can withstand oil price increases so far.
“Anything like we have seen so far neither we nor the private sector has forecast that would derail our recovery,” Goolsbee said yesterday at a breakfast with reporters organized by the Christian Science Monitor.
Goolsbee said that as the economy has grown more energy-efficient, fuel price increases have had less impact on economic growth than they did during the oil price shocks of the 1970s. Still, gasoline prices have risen 20 percent from a year ago to a nationwide average of $3.189 a gallon, according to Department of Energy figures.
While the cost of gasoline has “some psychological impact,” he said, consumer confidence recently has been strengthening.
“We start from a more optimistic place for 2011 than we have been in some time,” Goolsbee said.
Consumer confidence climbed last week to the highest level since April 2008 as Americans grew less pessimistic about their finances.
The Bloomberg Consumer Comfort Index, formerly the ABC News U.S. Weekly Consumer Comfort Index, was minus 39.2 in the period to Feb. 20, compared with minus 43.4 the prior week, a report yesterday showed. Forty-nine percent of those polled held positive views on their financial situation, the most in a year.
The rise in oil prices brought a call yesterday for Obama to consider tapping the U.S. Strategic Petroleum Reserve, which holds 726.5 million barrels of crude oil in four caverns created in salt domes along the Texas and Louisiana Gulf Coasts.
In a letter to Obama, Democratic U.S. Representatives Edward Markey of Massachusetts, Rosa DeLauro of Connecticut and Peter Welch of Vermont asked the president to use the reserve to mitigate any rapid increase in prices that may hit during the summer driving season.
“Releasing even a small fraction of that oil could have a significant impact on speculation in the marketplace and on prices,” the lawmakers wrote in the letter, which was released by their offices. “It would also remind the world that the U.S. is ready, willing and able to use the SPR aggressively and effectively if needed.”
White House press secretary Jay Carney declined to directly respond to the letter.
While the U.S. has “the capacity to act in the event of a major supply disruption,” Carney said, “I’m not going to preview what might happen if a further disruption happens and what our options are.”
In August 2008, as a candidate for president, Obama called for the government to swap light crude in the reserve for heavier oil at a time when crude oil was at more than $120 a barrel and the average retail price of gasoline was about $3.90 a gallon. He previously opposed tapping the reserve as a brake on prices. When oil peaked at $147.26 a barrel in July of that year, President George W. Bush resisted calls to release some reserves to drive down prices.
The reserve was established in a 1975 law as a buffer on supply disruptions. Oil was released for emergencies during the first Persian Gulf War in 1991 and following Hurricane Katrina in 2005.