One day after Saudi Arabia declared war on U.S. oil producers by lowering prices in an attempt to dump cheap crude in the United States (US) market, the White House and private oil companies responded. White House spokesman Josh Earnest said that the U.S. is monitoring the global oil supply and demand situation but has no comment on whether it might look at replenishing the Strategic Petroleum Reserve. Then, later in the day, the Wall Street Journal reported that BP is going to export ultra-light crude without the permission of the U.S. government in a move that not only starts to breakdown the US export ban, but also is a direct challenge to OPEC and other producers for market share. Both of these developments temporarily gave support to the petroleum complex, but it still was not enough to overcome the perception of overwhelming supply and Bank of Japan Gov. Haruhiko Kuroda’ s prescription against the disease deflation.
Let us start with the White House comment on the Strategic Petroleum Reserve (SPR) that was obviously a thinly veiled message to Saudi Arabia. It was an attempt by the White House that they were not very happy with the Saudis price discounts and to remind them that there are steps that the U.S. can take to retaliate in the production war. Up until yesterday sources in SPR had said that the White House was actually looking into reducing the size of SPR, which currently holds about 690 million barrels by about 10 million barrels to about 590 million barrels. The need for SPR oil has been reduced because of the rise in US oil production. The Saudis feared that the U.S. dumping 10 million barrels of heavy crude into an oversupplied market would cut right into their bottom line.
The Saudis other nightmare is the lifting on the U.S. oil export ban, which already is falling apart. How to define what is crude and what isn’t crude is harder as U.S. shale oil is so light in gravity it floats above the normal West Texas Intermediate scale. The Wall Street Journal reported that BHP Billiton cut a deal to sell about $50 million of ultralight oil from Texas to foreign buyers without formal government approval. The Journal says that this may “be only the first of many such moves as energy companies seek new markets and higher prices for the surge of crude now pumped in the U.S.”
Full article: U.S. Returns Fire in Saudi Arabia’s Oil War (FOX Business)