Selling of the US Strategic Petroleum Reserve would mean a greater supply to the international market, thus having a dampening effect on prices, Sijbren de Jong, analyst at The Hague Center for Strategic Studies and expert in energy security told Trend May 24.
He was commenting on the proposal made recently by the US President Donald Trump to sell half of the country’s oil reserve.
“In monetary terms, of course this will generate some revenue that can be used to plug the US budget,” he said. “If in the future, the US domestic supply of oil were to decrease due to natural depletion, and if there is a major international crisis that causes a spike in oil prices, then the US would have less leeway to release oil from the strategic petroleum reserve in a bid to dampen prices.”
However, the expert pointed out that this is not a decision that is taken overnight.
“The market reacts to such announcements, but this is not a reaction based on a change in fundamentals. If this policy is implemented, it will take time,” said Sijbren de Jong.
The Strategic Petroleum Reserve is a US government complex of four sites with deep underground storage caverns created in salt domes along the Texas and Louisiana Gulf Coasts that store emergency supplies of crude oil owned by the US government.
Current storage design capacity is 713.5 million barrels.
The US started the petroleum reserve in 1975 after oil supplies were interrupted during the 1973–1974 oil embargo, to mitigate future temporary supply disruptions.
Regarding the expectations from the OPEC meeting to be held May 24-25, he noted that realistically, they should go for a 9-months extension and even increase the cut.
“But, I do not see a great likelihood of the OPEC countries wishing to cut further. Many of the countries simply need the revenue of an additional barrel of oil sold. They are in a tough spot. Therefore, I expect a push for 9 months,” added the expert.
In December 2016, OPEC and non-OPEC producers reached their first deal since 2001 to curtail oil output jointly and ease a global glut after more than two years of low prices.
Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce output by 558,000 barrels per day starting from Jan. 1, 2017 for six months, extendable for another six months.
OPEC agreed to slash the output by 1.2 million barrels per day from Jan. 1.
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