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Talk Trump may tap strategic oil reserves raises questions
NEW YORK, July 20, 2018 (BSS/AFP) – Reports that President Donald Trump
could soon tap the Strategic Petroleum Reserve in a bid to lower gasoline
prices have raised concerns the emergency stockpile is being compromised for
political purposes.
Constructed in the wake of the 1970s oil shocks, the SPR is spread across
four sites in Texas and Louisiana in the south of the United States. It
currently holds 660 million barrels of oil in salt caverns, meant to protect
against a sudden disruption in oil supply.
The Trump administration is weighing a release of between five and 30
million barrels of oil, according to Bloomberg, which cited unnamed sources.
The move comes ahead of midterm congressional elections in November as
pressure mounts over gasoline prices at the pump, which are higher than they
were a year ago due to rising crude prices.
While the increase in oil prices is partly due to recent supply
disruptions in Libya and Canada, commodities analysts point to various
factors, including Trump’s move to renew sanctions on major oil exporter
Iran.
But just the rumor that more oil might be hitting the market sent US oil
prices down by more than four percent or nearly $3 a barrel on Monday.
Analysts say supply conditions are not abnormally tight, and some are
skeptical that a release of crude onto the market is warranted.
“In the face of disruptions that threaten world production, it makes sense
to use these reserves as a matter of urgency,” said Phil Flynn, an analyst at
Price Futures Group.
“My fear is that the United States can begin to use them as a weapon to
manipulate prices and that this weapon will become inefficient in the event
of a real crisis in the market.”
Others point to evidence that supply pressures already are being
alleviated, notably by the Organization of the Petroleum Exporting Countries,
which agreed last month to boost output.
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Gasoline prices have pulled back from their peak this year after rising to
around $3 a gallon in May. The national average now stands at $2.86 a gallon,
according to AAA.
“The gas price hike that has recently hit American motorists and against
which Donald Trump is fighting before the November mid-term elections is
partially resolved as these prices have already fallen,” said Andrew Lebow,
an associate at Commodity Research Group.
The International Energy Agency, a multilateral organization representing
governments of oil-importing nations, said there have been no talks among
members of coordinating an emergency release.
– Big oil releases rare –
Major releases by the SPR have been rare and have previously been
implemented in coordination with the IEA and other member countries.
In 1991, the US reserve released 17 million barrels onto markets during
the Desert Storm military operation led by the US after Iraq invaded Kuwait.
The stockpile also pumped out 11 million barrels of oil following
Hurricane Katrina in 2005 and another 30 million barrels in 2011 after the
overthrow of the Libyan government.
Other releases have been smaller, such as last summer, when the SPR
released five million barrels following Hurricane Harvey.
The current SPR level is below its peak as politicians eye revenues from
shrinking it and selling the oil. That may be a less perilous course given
rising US production from the shale energy boom.
A budget plan presented by the Trump administration envisions shrinking
the SPR to 410 million barrels by 2027. That would allow the Energy
Department to close two of four storage facilities on Gulf Coast.
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