Depleting your oil ‘savings account’ might not be the wisest idea when you are both one of the largest consumers of oil in the world and not one of the largest producers.
Oil prices are on the brink of possibly their biggest correction since the global financial crisis after Vladimir Putin’s gamble to use Russia’s crude as a political weapon backfired spectacularly on the Kremlin.
A potent energy superpower, Russia had thought that it could use its status as the world’s largest oil producer and biggest exporter of natural gas through cross-border pipelines to intimidate and quite literally bully Western powers into submission over Ukraine.
The mere suspicion among oil and gas traders that the country’s president would turn off the taps on the thousands of kilometres of pipelines that snake their way from fields in Siberia’s steppe to export terminals and urban consumers in Europe – in retaliation for economic sanctions imposed by the US and Brussels – had been enough to keep energy markets artificially frothy.
Ole Hansen, head of commodity strategy at Saxo Bank, has now made the bold call that about $25 could be slashed off the price of a barrel of crude if the US government were to open its huge stockpiles of oil stored in the nation’s Strategic Petroleum Reserve (SPR).
Set up in 1975, the reserve was intended to provide at least 90 days’ worth of imports to protect Americans from the kinds of intermittent “oil shocks” that two years earlier, during the Arab oil embargo, had seen petrol pumps run dry.
The reserve was first seriously tapped into in 1990, when coalition forces launched military action to evict Saddam Hussein’s Iraqi forces from Kuwait.
In 2005, 11m barrels were released in response to Hurricane Katrina, and in 2011, Washington again offered to place crude on the market from the SPR to ease pressure on markets after production in Libya was knocked out by the civil war.
The reserve, which is held in huge tank farms across America, now contains 700m barrels of crude, enough to meet the entire world’s oil consumption for almost eight days. According to Hansen, most of it was accumulated at an average cost of about $30 per barrel – a significant discount to current prices.
Full article: Obama aims oil weapon at Putin but will he pull the trigger? (The Telegraph)