Talk Trump may tap strategic oil reserves raises questions

NEW YORK (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 US$ 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.

Gasoline prices have pulled back from their peak this year after rising to around US$ 3 a gallon in May. The national average now stands at US$ 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.

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.