REPOST: US surprises market with sale from SPR

Oil prices hit their lowest levels after the news of the test sale of Strategic Petroleum Reserve (SPR) broke out. Is this why the government's holding off the test sale? Read about it from this article.

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The US will hold the first test sale of crude from its emergency oil stockpile - Strategic Petroleum Reserve (SPR) – since 1990, offering a modest 5 million barrels in what some observers saw as a subtle message to Russia from the Obama administration.

The Energy Department said the test sale had been planned for months, timed to meet demand from refiners coming out of annual maintenance cycles. But oil traders noted that Russia’s effort to take over the Crimea region from Ukraine has prompted calls for use of booming US energy resources to relieve dependence on Russian natural gas by Europe and Ukraine.

 

Oil prices dipped to their lowest levels in a month after news of the test sale.

Officials said the release would ensure that oil stored in vast salt caverns could still reach local refiners affected by recent changes in pipeline infrastructure.

“Due to the recent dramatic increase in domestic crude oil production, significant changes in the system have occurred,” department spokesman Bill Gibbons said. The test sale was needed to “appropriately assess the system’s capabilities in the event of a disruption,” he added.

Surging US shale oil production has upended the logistics of US crude markets. Major pipelines that traditionally moved oil from the Gulf to the Midwest have reversed course, moving a glut of shale oil from places like North Dakota to points south.

Analysts say President Barack Obama has been more willing than his predecessors to tap the strategic reserve, noting that he did so in 2011 as part of an international response to civil war in Libya. While that 2011 sale was an emergency release, the Energy Department has said the latest sale is a test of the reserve’s operations. Many questioned whether the US SPR was large enough to send a meaningful political message to Russia, especially since US law still bans most exports of US crude oil. The SPR holds enough oil to cover US crude oil imports for about 80 days.

“It could be a message from Obama that says, ‘Russia, we can impact the price of oil if we want to.’ But I think that’s giving the administration too much credit at this stage,” said Dominick Chirichella, senior partner at Energy Management Institute in New York. Republican lawmakers concerned about Crimea have stepped up calls for the administration to approve natural gas exports more quickly to pressure Moscow. But a dearth of US terminals to export liquefied natural gas (LNG) means significant exports are years away, limiting the immediate use of gas as a geopolitical tool.

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Dr. Ali Ghalambor has more than 30 years of experience in the oil and gas industry. For more about him, and to read more news about the industry, visit this blog site.