Flashback:

On 4/13/08, oil prices were skyrocketing, and reached $113 / barrel. (Oh, for the good old days!) That day, I wrote a post about the increasing cost of oil, and what I felt would jolt the market back to reality: releasing oil from the U.S. Strategic Petroleum Reserve, and a temporary halt to the purchasing of new oil for the SPR.

The SPR has the ability to put up to 4 million (!) barrels per day in circulation, and contains in excess of 700 million barrels. I argued at the time that stabilizing the market is certainly in the national security interests of the U.S. Indeed, during the early part of the summer, new purchases for the SPR were suspended. And nothing would tame prices quicker than injecting oil from the SPR into the market.

Today, a couple of months prior to heating season, Barack Obama released an energy plan that includes drawing down about 10% (70 million barrels) of oil from the SPR. And guess what?

Light, sweet crude for September delivery fell more than $5 at one point to $119.50 a barrel on the New York Mercantile Exchange, its lowest level since May 6…

Of course, the analysts and energy wonks are attributing the sharp decline to weakness in consumer spending, a steep drop in demand, and lack of potential impact on Gulf Coast drilling from Tropical Storm Eduardo. It’s kinda funny, because had the price of oil gone up today, the same analysts would be blaming the increase on Eduardo, Iran, and Nigerian civil unrest. It’s as predictable as sunrise and sunset.

I have a sneaking suspicion that the analysts also understand that major political changes are on the horizon, and that those changes will result in a total recasting of U.S. energy policies. Couple this with the potential for releasing “cheap” oil from the SPR, and voila - they want their clients to reduce exposure in the oil markets.

Yep, the oil bubble is bursting.