What happens if the United States operates its emergency oil reserve?



[ad_1]

  OPEC agrees to boost oil production

President Donald Trump has not hesitated to express his disgust for high oil prices. But beyond sending angry tweets, he can not do much about them.

Unlike Middle East leaders Trump can not simply order American oil companies to pump more oil. West Texas already produces so much crude oil that there are more pipelines.

The biggest lever that Trump can pull is to release oil from the strategic oil reserve, the largest emergency oil stock held by the government. The administration has used this option last summer in response to major refinery failures caused by Hurricane Harvey.

Even though analysts doubt that the operation of emergency reserves is warranted now, there is more and more speculation on the oil markets that Trump will do just to fight high gas prices before mid-term elections in November.

"Nothing holds more the attention of Congressmen and presidents of all parties than the rise in gas prices," said Joseph McMonigle, Senior Energy Policy Analyst at Hedgeye Potomac Research.

Oil prices fell sharply at the beginning of the month after the Wall Street Journal reported that the United States planned to team up with other Western countries to simultaneously launch oil stocks. emergency. The energy department declined to comment on the report.

But prices could rise again if tensions between the United States and Iran keep warming. Trump sent a burning tweet on Sunday night warning Iranian President Hassan Rouhani that any threat would have disastrous consequences.

Related: Texas will pass Iraq and Iran in oil production

No shortage of supply

The Strategic Reserve is a complex of four sites along the Gulf of Mexico that have deep underground storage caverns. It contains about 660 million barrels of crude oil. It was meant to be used during emergencies such as hurricanes or wartime, but the president can open it at his discretion.

Despite stalemate with Iran, McMonigle estimates that no emergency oil spill is imminent.

"If you are going to do it for political reasons, you will want to do it closer to the election itself," said McMonigle, who served as chief of staff at the Department of Energy in the early 2000s.

Presidents used the RPD for non-urgent reasons. The Obama administration released about 30 million barrels of crude oil in June 2011. The energy department said it feared that supply disruptions in Libya and in elswehere are threatening the global economic recovery.

But using the reserves now would leave "little ammunition on the road if a real emergency comes up," said Jason Bordoff, director of the Center for Global Energy Policy at Columbia University and former head of the department. energy in the Obama administration.

The government can still fill the SPR, but it costs money – and withdraws the market offer.

"If there was a release before the mid-term elections, it would appear to be of a political nature given that there is no shortage of supply", said Matt Smith, director of product research at ClipperData.

The Department of Energy did not immediately respond to a request for comment.

Related: The Trade War Threatens America's Booming Oil Exports

"Not a Long Term Solution"

A possible threat to the oil market is a disruption of Iran's supply.

The sanctions could eliminate up to 1.5 million barrels per day of crude supply from Iran, the world's fifth largest producer.

Concerns over the administration's firm stance towards Iran helped to push US oil prices up to $ 75 per barrel in early July. They have since declined to about $ 68.

Crude's return caused some pain at the fuel pump. The national average price of gasoline is $ 2.84 a gallon, up from $ 2.28 a year ago, according to AAA.

But it is unlikely that the release of emergency oil stocks will bring prices down for long. Refineries in the United States are already operating close to capacity. In other words, they have little room to turn more oil into petrol.

"It would work temporarily, but it's not a long-term solution," Michael Wittner, global head of petroleum research at Société Générale.

Iran threatens a critical oil point

The last few days show that the Trump campaign against Iran goes against its goal of keeping oil and gas affordable.

Iran has promised to respond to Trump's efforts to wipe out the country's oil exports through sanctions.

Iranian leaders warned this month that they could react by disrupting the Strait of Ormuz, a critical oil point. According to US government estimates, more than one-third of the world's maritime oil trade passes through the Strait of Hormuz.

Although blocking the flow of oil from the Strait of Hormuz would be a radical move, analysts note that Iran has a history of harassing US Navy vessels in the region.

"The war is not imminent, but the likelihood of a progressive incident in the Strait of Ormuz increases," wrote Cliff Kupchan, president of the Eurasia group, to customers.

CNNMoney (New York) First published on July 25, 2018: 12:01 AM ET

[ad_2]
Source link