The Obama administration said it plans to sell 5 million barrels of crude from the U.S. Strategic Petroleum Reserve in a test of the distribution system.
Thank you for reading this post, don't forget to subscribe!The sale of less than 1 percent of the total stockpile has been scheduled for some time and isn’t tied to turmoil in Ukraine or other geopolitical events, said William Gibbons, an Energy Department spokesman.
“Due to the recent dramatic increase in domestic crude oil production, significant changes in the system have occurred — including pipeline expansion, construction of new infrastructure, reversed flow of existing pipelines and increased use of domestic crude oil terminals,” necessitating the test, Gibbons said in a statement.
Potential buyers have until March 14 to submit bids for the oil in the reserve, created in 1975 as a way to protect against a severe disruption in supply. Delivery will start April 1 and end April 30, the department said.
“They just want to make sure they can move crude oil through the system,” Robert McNally, president of Rapidan Group LLC, an energy consulting firm in Bethesda, Maryland, said in a telephone interview. “This is not about geopolitics.”
Oil Prices
Oil prices fell in New York. West Texas Intermediate oil for April delivery traded below $100 for a second day, falling 2.3 percent to $97.76 a barrel at 11:55 a.m., after touching the lowest intraday level since Feb. 7. The U.S. Energy Information Administration in report said supplies rose three times as much as expected and refineries operated at the lowest rate in four months.
The U.S. has conducted two previous test sales from the oil reserve, including a 4 million barrel sale in August 1990, months before the U.S. attack on Iraq.
“That’s why eyebrows may go up,” McNally said.
The Energy Department also wants to conduct tests before the hurricane season begins June 1 and before refineries switch over to summer-grade gasoline, he said.
The Obama administration is unlikely to use oil as a weapon against Russia for its intervention in Crimea, said McNally, international and domestic energy adviser at the White House National Economic Council under President George W. Bush.
‘Punish Russia’
Of the total being sold, 4 million barrels will be taken from the Energy Department’s West Hackberry storage site in southwestern Louisiana and 1 million from the Big Hill site in east Texas, the department said.
“It sounds like a small amount,” Erik Milito, director of upstream and industry operations at theAmerican Petroleum Institute, said of the test sale on a conference call today with reporters.
The market impact from the test sale may be minimal, considering the relatively small volume involved, Milito said.
As of March 4, the reserve held 696 million barrels of crude oil, according to information on the department’s website.