US and UK To Release oil From Strategic Reserves

The SMH has a look at the politics surrounding the announcement the US and UK will release oil supplies from their strategic reserves to try to lower oil prices (something the oil industry appears intent on fighting a vigorous PR campaign against, along with their Republican emissaries in Washington, judging by some of the FUD being spread about it) - Tapping strategic oil reserves is tricky.

The US Strategic Petroleum Reserve isn't quite as strategic as it used to be.

As President Barack Obama moves closer to an unprecedented second release of the US emergency oil stockpile in a bid to bring down near-record fuel prices, experts say dramatic logistical upheavals in the US oil market over the past year may now make such a move slower and more complicated.

Moving to tap the four giant Gulf Coast salt caverns that hold 700 million barrels of government-owned crude would still almost certainly knock global oil futures lower, delivering some relief at the pump for motorists and helping Obama in the November election if he can prevent gasoline from rising above US$4 a gallon nationwide.

On Thursday, prices fell by as much as $US3 a barrel after Reuters reported that Britain was set to agree to release stockpiles together with the United States later this year. UK officials said the timing and details of the release would be worked out prior to the summer, when prices often peak.

But the logistics of getting that crude oil to willing refiners are more complicated than ever. The reversal of a major Texas-to-Oklahoma pipeline will lower the distribution capacity of the SPR's largest cavern, according to John Shages, who oversaw the US oil reserves during the Bush and Clinton administrations. A resurgence in domestic oil output and the potential closure of the East Coast's biggest refinery is curtailing demand for crude.

There's little doubt that SPR oil would eventually find buyers, since it is basically auctioned to the higher bidder. But it may move more slowly than the government hopes. "The logistical system in the United States is shifting," said Guy Caruso, the former head of the Energy Information Administration. "That probably is going to cause SPR officials to rethink how that oil would be distributed especially in an extreme scenario."

The mechanics of the release may prove almost as tricky for Obama as rallying international support for a second intervention in as many years, or fending off attacks from Republicans who will likely brand it as a pre-election gimmick.