Potential Sale of Oil from SPR Gaining Steam

Bloomberg News reported on March 26 that the possibility of the U.S. releasing emergency stockpiles of oil in order to punish Russia is gaining a bit of steam in Washington. George Soros was the latest to support the idea that selling oil from the U.S. strategic petroleum reserve would immediately lower global oil prices, cutting into the predominant source of revenue for Russia. According to Philip Verleger, an energy consultant and former member of the Ford and Carter administrations, the U.S. could lower oil prices by as much as $12 per barrel if it sold just 500,000 barrels per day from the reserve.

The U.S. created the SPR as a response to the oil embargo in 1973. It stores 696 million barrels of oil in salt caverns in Texas and Louisiana. Other members of the International Energy Agency are also supposed to hold around 90 days’ supply of oil in reserve as well, to be supplied in the event of an outage.

Related Article: Markets in Turmoil on Ukrainian Crisis

The Obama administration announced earlier this month that it would sell 5 million barrels of oil in a test sale in order to ensure the distribution system worked properly. Many saw that move as a warning to Russia that more could be coming. Secretary of Energy Ernest Moniz has so far dismissed the notion that the U.S. will sell large volumes of oil from the reserve.

While more hawkish forces may be pushing for an SPR release, there will be considerable pressure from the other direction not to make such a move. The objective of lowering oil prices would not only hurt Russia, but it would also cut into the business operations of drillers in America’s oil patch. Instead of an SPR release, the U.S. oil industry is pushing hard for opening up for oil exports as a geopolitical solution to the Ukrainian crisis.

By Charles Kennedy of OIlprice.com