(Robert Campbell is a Reuters market analyst. The views
expressed are his own)
By Robert Campbell
NEW YORK, March 15 U.S. President Barack
Obama, itching to pull the trigger on a fresh release from the
strategic oil reserves to quell surging fuel prices, is getting
closer to plunging into the market without backup from other
Opposition to a fresh use of strategic oil stocks has come
from European members of the International Energy Agency,
threatening to slow any stock release.
In recent weeks senior European and IEA officials have
downplayed the need for a release arguing there is no clear and
present supply shortage in the oil market.
Top U.S. officials have said publicly in recent weeks that a
U.S. oil release is among the options the government is
considering but that no decision has been taken.
But Washington is clearly not willing to wait for a
consensus to emerge. With gasoline prices moving up the list of
concerns for Americans just as a general election looms, Obama
will be keen to get extra crude onto the market in time to nip a
further price increase in the bud.
In the clearest sign yet that independent action is getting
nearer, British officials have said they expect a formal request
to release oil to come from the United States "shortly" and that
they have decided to cooperate in any "bilateral" action.
Given the time it takes to get oil to the market, and the
fact that much of the current tightness is not in the Atlantic
basin but rather the Pacific, action must come sooner than later
if it is to have the greatest impact.
(For a discussion of the logistical challenges see the
following story: [ID:nL2E8DT2FY])
Indeed, it can be argued that the immediate impact of last
year's IEA action in response to the civil war in Libya was
blunted by the time it took for the group to agree on a release.
For the most part the absence of some European partners will
not greatly diminish the impact of any action by the United
States. The U.S. mainly holds its strategic stocks in the form
of crude oil.
The support of the IEA mainly gives the United States cover
for what is tantamount to intervention in the market. A
bilateral accord with Britain is mainly a downgraded version of
this cover, especially as London has relatively little in the
way of strategic oil stocks.
The real question is just how the mechanics of any release
might work. In 2011, the United States sold off sweet crude
stocks which pushed American refiners to reduce imports of
foreign sweet crude, allowing these cargoes to be diverted to
Europe where supplies of light, sweet crude were extremely
This year it is not so easy as U.S. imports of sweet crude
have plunged. Purchases of Nigerian crude oil, generally light
sweet grades, are down sharply as rising domestic light crude
output displaces imports.
Preliminary data complied by the Energy Information
Administration show imports of Nigerian crude oil averaging only
310,000 bpd over the last four weeks, less than half the average
level in 2011.
That could curb the impact of any stock release simply
because it would not displace as much imported crude oil as in
2011 as well as running the risk that U.S. refiners might not
take up all the oil being offered due to plentiful domestic
As such, it seems likely that any release of oil from the
Strategic Petroleum Reserve will include sour grades in order to
maximize the amount of imported crude oil that can be displaced
and freed up for buyers in Asia and Europe.
All this raises awkward questions that Obama appears
determined to face.
In essence unilateral action, or near unilateral action with
the token support of some allies, means the United States will
be indirectly shouldering the cost to transfer crude oil stocks
It also cannot appear to be nakedly political, coming the
summer of an election.
It also cannot fail or risk being a massive embarrassment
for the president. If too few barrels are pumped out of the SPR
to make an appreciable impact on oil prices then Obama's
opponents will have been handed another weapon to bash him with
on energy policy.
But if the president is willing to gamble on intervening in
the market without the support of allies he may also be willing
to gamble with a much bigger release than the market expects.
(Editing by Bob Burgdorfer)
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Keywords: COLUMN OIL/SPR
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