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The Graph of the Century- Tomorrow's Oil prices

The graph above shows How ,in 2014 ,the USA Department Of Energy (DOE) used only 5 million Barrels of "The Strategic Petroleum Reserve-(SPR)" to stop the oil prices from passing the $120 level click Here . But why The US Department of Energy (DOE) has been directed to use The SPR now , when the oil prices are alreaady too low?????

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Introduction

Definition = The Strategic Petroleum Reserve (SPR) is an emergency fuel storage of petroleum maintained underground in Louisiana and Texas by the United States Department of Energy. It is the largest emergency supply in the world, with the capacity to hold up to 727 million barrels.

The United States started the petroleum reserve in 1975 after oil supplies were interrupted during the 1973–1974 oil embargo, to mitigate future temporary supply disruptions.

Past Drawdowns: Rememeber ,In the past, SPR releases have occurred four times .

First, in 1991, Operation Desert Storm, .

The second Hurricane Katrina, .

The third on June 23, 2011 libya crisis , during the unrest in Libya.). .

The fourth release, was on March 2014, during the crisis in Ukraine, and the annexation of Crimea by the Russians.

The last release was the mind blowing decision sent a wrong message to the market "Emergency, full your tanks, and there is a "threat to supply interruption ".

The White House released 5 million barrels of crude from SPR (Strategic Petroleum Reserve), to a market already flooded with crude to be released on May 2014 , As a result, the Futures Market went bullish, prices increased, the USA Crude inventories reached maximum. Which had to be destocked as soon as the market discovered that “The whole thing was a False Alarm “ and the first prices click collapsed followed.

OPEC ,NON_OPEC, AND SPR


OPEC and Non-Open Countries , after so many attempts reached an agreement and came out on Wednesday 30th Nov 2016 with press release of how the 1.2 mb/d production cut was shared among the members ……..

Basically the agreement was for six months with the starting date chosen wisely as from January 2017. Thanks to Iraq , who made this agreement possible

click-Potential price collapse Averted by uncelebrated heros

while Opec and Non-Opec , were Painfully sticking to the agreement, and were expecting a price revival , but it was short lived (see the graph above ). After February, the " The market Needle " was pointing to the wrong direction... and the trend is cycling downward!!

On May 27th 2017 , they had to take another painful decision to extend the production cut agreement for another 9 months. . Still the needle is moving down even in spite of “ The present Qatar crisis, which under normal circumstances would have sent the prices through the roof;

The light at the end of the tunnel which OPEC sees is the head light of an oncoming Train called SPR

while Opec and Non-Opec , where working hard to improve the market expectation for their january production cuts: There was a new mind blowing decision taken by the USA, on December 13, 2016 (just before Opec agreement taking effect on First January 2017), much similar to March 2014, to drawdown 10 million barrels of crude oil to be sold by the end of February 2017. The Total drawdown is 25 million barrels which is almost half of Cushing crude inventories, enough to manipulate the international crude oil market for a long time to come ( at least 3 years) or as long as Presideent Trump is in office.

The Opec price formula and Sherlock Holmes- click here

The Department of Energy’s (DOE) Under Section 5010 of the 21st Century Cures Act (Public Law 114-255), signed on December 13, 2016, “The Secretary of Energy is directed to drawdown and sell 25 million barrels of SPR crude oil over three consecutive years, commencing with 10 million barrels in late February, 2017. The entire 10 million barrels will be sour crude drawn from three sites—Bryan Mound and Big Hill in Texas, and West Hackberry in Louisiana. Revenues from the sale will be deposited in the general fund of the U.S. Treasury to carry out “the National Institutes of Health innovation projects” as designated in the 21st Century Cures Act.

Details Details

In USA , the SPR on going debate

There’s a continual debate about how SPR stocks should be used. There are three options

1- “Take full advantage of The SPR oil, which is valued at roughly $29.7 per barrel for ad hoc manipulation of the world’s markets. The OECD Stock can completely be used to stop any price shock

2- SPR is “an Emergency Stock” and should be used only in emergency.

“Protecting the US economy from sharp increases in domestic petroleum product prices was the purpose of the SPR in 1975 and it remains the purpose of the SPR today,” DOE says.

3: Boone Pickens, founder of BP Capital.argues for the complete elimination " of the strategic petroleum reserve, and that would save the country "one heck of a lot of money." "Tell me the case where you need it?," he said ,. "Things have changed. Resources are better understood," Pickens said."You may not want to take all the SPR out" but the system is ripe for reform,

Conclusion

With SPR crude oil Volume reaching 680 million Barrels , which is 10 times larger than the volume of crude oil stored in Cushing , it is only logical to use The SPR for " Protecting the crude oil market prices from shocks and manipulation by countries outside OECD

Jabbar al-Jaf:Oil Market Analyst