US, Other Countries Battle OPEC With Release From Oil Reserves
While Robert continues his trip to Europe and across the Continental U.S., a significant piece of news has been dominating the headlines. Although we’ve been closely monitoring the release of 60 million barrels of crude on our Energy Ticker page, we also wanted to generate some discussion on the topic, here, on the R-Squared Energy Blog.
Robert has, in the past, covered the topic of using the Strategic Petroleum Reserve as a weapon to control prices. In one article, he argued against politicians who were calling for a release, titling the essay: “Speculator’s Political Reserve?“. Robert also observed the Jekyll & Hyde phenomenon in “Contradicting Goals: Cheap Gas and Lower Carbon Emissions“. The topic was also covered in his “Debunking Five Myths about Gas Prices” essay.
To kick things off, here’s a quick bullet-point roundup of facts and analysis:
- After what the Wall Street Journal termed a “A Coalition Strike on Oil Prices” crude oil futures plummeted to a 4-month low. According to one US. official who spoke to Reuters, the 30 million barrels of crude being released from the U.S. Strategic Petroleum Reserve will be offered in one bid sale rather than in a staggered release.
- Analysts contend that Tapping Oil Reserve Still Won’t Lower Gas Prices Below $3
- Politicians and pundits were puzzled: Oil Prices Were Already Falling, So Why Tap Reserves Now? But according to another article, oil traders considered it to be a ‘Genius Move’ by Obama.
- Brent oil could fall $10-$12 on IEA release according to Goldman Sachs.
- The American Petroleum Institute criticized the move, saying that by failing to develop our own energy supplies “we’re avoiding the fundamental question of domestic oil supply.”
- Not surprisingly, OPEC was upset that other players are exerting control over the oil markets. Ironically (or should I say hypocritically?) one delegate of the cartel slammed the move, stating that he doesn’t know “how to justify this interference in the market.”
- So how much exactly is 60 million barrels of oil? According to the IEA it amounts to about 17 hours of global oil consumption. Also see Reuters piece: “Factbox: How much is 60 million barrels of oil?“
- According to a column on MSNBC, the intention was not to keep consumers well supplied, but rather to chase speculators out of the market. However, U.S. Energy Secretary Steven Chu stated unequivocally that the release was intended to counter the loss of supply from Libya.
- The International Energy Agency released a comprehensive FAQ on the “collective action,” and it’s well worth the read.
- Gregor Macdonald has an excellent post up on his blog: “The Dark Side of the OECD Oil Inventory Release“. In it, he writes about three negative implications of the move: (1) Saudi failed to make up for the Libyan supply loss; (2) Non-OPEC producers have no spare capacity; (3) Marginal supply (tar sands, shale, etc.) will be put at risk.
There certainly are more angles to this story than the above links covered, so feel free to add your own thoughts or links in the comments. We may edit the above list to include new information or interesting thoughts and links posted in the comments.