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(Repeat column of July 19 John Kemp is a Reuters market analyst The opinions expressed are his own)
* Chart 1: tmsnrt.rs/2LwLCMl
* Chart 2: tmsnrt.rs/2JzsiMI [19659002ByJohnKemp
LONDON, July 19 (Reuters) – The release of crude oil from the US Strategic Oil Reserve (SPR) in response to price increases resulting from the reimposition of sanctions against Iran would be a mistake defeat.
The RPD contains enough crude oil to offset any export losses for several months, particularly if the inventory releases are combined with an increase in oil production from Saudi Arabia and the United States. 39, other members of OPEC.
The statutes governing the operation of the SPR give the US President wide discretion to order a levy, and it is unlikely that the order will be forced by Congress or the courts.
But the SPR was created to deal with short-term interruptions in crude oil supplies and is not suitable for managing long-term changes in the supply situation.
In particular, if the goal is to relieve upward pressure on prices, it would weaken the signal needed to help the market adapt to sanctions.
If SPR's release succeeds in containing prices, it would discourage the increase in production needed to replace the lost Iranian casks, while allowing rapid growth in consumption to remain uncontrolled.
Deploying the SPR to handle a loss of Iranian oil supplies would ultimately prove self-destructive, and impoverish the reserve if pursued for a while.
Like a buffer stock management system that can balance short-term variations in supply and demand, but not permanent, the SPR is better used to make dealing with supply interruptions in the short term.
PRESIDENTIAL AUTHORITY
The United States is considering releasing raw stocks from the RPD, possibly in collaboration with its partners at the International Energy Agency (IEA), according to reports, to prevent a sharp rise in oil prices.
"The Trump Administration is actively assessing the need to tap into the country's emergency oil stocks while simultaneously pushing other countries to increase their production," Wall Street reports Newspaper on July 13th.
A downgrade is not imminent If increased production from Saudi Arabia and other OPEC members fails to avoid another sharp rise in prices, the newspaper reported, citing people familiar with the issue.
The Speaker has the authority to order a lowering in response to a "serious interruption of energy supply" under the Energy and Conservation Policy Act, 1975, as amended (PL 94-163).
The law authorizes the president to order a levy in response to an interruption in material supplies (42 USC 6202) or a significant increase in prices likely to have a major negative impact on the economy (42 USC 6241).
Although the decision is subject to the conditions set out in the law, it is written so vaguely that the chair has almost complete flexibility.
Congress and the courts have traditionally handed over to the president the issue of national security, so that it is unlikely that this would prevent a decision of withdrawal.
Presidents twice issued emergency prints, in response to the first Gulf War between the United States and Iraq (1991) and Hurricane Katrina (2005). ).
And the White House has already ordered a non-urgent sale, in response to interruptions of supply in Libya and in other countries (2011), as part of a coordinated action with other member states of the IEA.
Other sales were allowed to test the release process, or mandated by Congress for budgetary reasons ("SPR Release History", US Department of Energy).
The reserve also traded or loaned oil to refiners on a number of occasions to deal with short-term, site-specific shortages.
If the administration considers that a release of crude from the SPR would be advantageous, for political or political reasons, nothing prevents the president from ordering it in the months to come.
PLENTY OF BARRELS
"The formidable size of the RPD … makes it a major deterrent against oil imports and a key tool of foreign policy," according to the US Department of Justice's website. # 39; Energy.
The reserve contains about 660 million barrels of crude oil, compared to 727 million barrels in January 2010, mainly because of budget-related sales (tmsnrt.rs/2LwLCMl).
Still, the SPR contains enough crude oil to cover refiners' net import requirements for more than 102 days, which ensures a high degree of security of supply.
Import coverage has continued to increase in recent years, although the number of barrels in storage has decreased slightly (tmsnrt.rs/2JzsiMI).
Thanks to the shale revolution, US oil production has increased and net oil imports have risen from nearly 10.1 million barrels per day in 2006 to 6.8 million barrels per day in 2017. [19659002] from 59 days at the end of 2000 and from 72 days at the end of 2006 to 106 days at the end of 2017.
Some analysts argue that the RPD now holds more barrels than necessary for national and economic security Reasons ("DOE needs to strengthen its approach to planning for the future of the emergency reserve", GAO, June 2018).
Under these circumstances, the president could easily order the release of 30 million, 50 million or even 100 million barrels without compromising his ability to cope with future supply shortages.
Freeing 100 million barrels would be enough to offset the total loss of Iranian exports for more than a month.
Assuming some exports continue, Saudi Arabia boosted its own production, and SPR's releases were offset by other IEA members, a withdrawal could offset the loss of Iranian barrels for several months.
PRICE TARIFF?
The RPD contains enough crude to allow the United States to impose a total or partial oil blockade against Iran for at least six to twelve months or even longer, while trying to limit the rising oil prices.
In theory, the United States could attempt to cut Iranian oil exports, partially or completely, while ensuring that the world oil supply remains unchanged.
U.S. politicians seem to explore this option, if recent information is given to journalists.
It is consistent with the President's repeated public messages on Twitter and television calling on the Organization of Petroleum Exporting Countries to increase its production.
This would facilitate the Trump administration's "maximum pressure" policy against Iran while attempting to avoid economically and politically damaging price increases.
The administration is likely to be particularly sensitive to political fallout, with congressional elections scheduled for November 6.
But the problem with using the SPR to manipulate prices is that it will create a growing distortion in the global market.
The use of the SPR to contain prices at a point in the cycle when they must increase to stimulate production and limit the growth of consumption will eventually add to volatility.
Freeing the RPD could have some value as an economic shock and fear, especially if the number of barrels offered for sale were large.
However, like all other attempts at market manipulation, the use of SPR to manage oil prices is unlikely to succeed in the medium term.
It could have a calming effect in the short term, allowing the administration to subject Iran to an intense economic siege for several months, in the hope that Tehran will bend under the pressure.
But the longer the release of SPR, the more it is deformed.
– United States Alludes to Sanctions Against Iran (Reuters, July 11)
– Could Saudi Arabia Replace All Barrels Lost by Iranian Sanctions ? (Reuters, July 9, 1965) Trump presses on Saudi Arabia to lower oil prices (Reuters, July 5)
– White House must choose between stiff sanctions against Iran and Moderate prices of gasoline (Reuters, July 2, 1965). 19659056] Principles of Thomson Reuters Trust.
