On Monday, the US Department of Energy announced that it will begin buying crude oil to restock the Strategic Petroleum Reserve (SPR), the level of which hit a multi-decade low last year following the release of stocks from the reserve when crude prices jumped to over $120. The announcement was not really a surprise as Energy Secretary Jennifer Granholm had effectively told lawmakers last week that it was coming, but even so, the market reaction, basically a big yawn and shrug of the shoulders, was interesting, and it set me thinking about the SPR and how traders should react to its deployment and replenishment.
The first thing that came to mind is that Joe Biden and Secretary Granholm seem to be better energy traders than any of us! They sold crude at or near the top of the market and are now beginning to buy it back at prices around forty percent below where they sold. Of course, it helps when you selling by yourself creates a market top to some extent, but we can all learn from what occurred. Most people are aware that selling high and buying low is a good idea, but the temptation to do the exact opposite is always strong. “This has done well, so I should buy more” is for some reason a far more natural thought process than “this has done well, so I should sell” even though the first is far more logical.
Lessons about trading logically aside, though, the most remarkable thing about what happened on Monday is that the market barely moved.