WASHINGTON: US President Donald Trump authorised the release of oil from the nation’s emergency oil reserves after a series of drone attacks in Saudi Arabia knocked out half of the kingdom’s crude output, or about 5% of world supplies.
In tweets, the president said the amount of oil released would be determined “sufficient to keep the markets well-supplied.”
Saturday’s attacks on Saudi Arabia rattled oil markets at the open, with Brent crude rising US$11.73 a barrel, the biggest-ever intraday jump, to as high as US$71.95, before falling back to trade at US$67.79 a barrel at 6.14am in Singapore.
Energy Secretary Rick Perry ordered officials to work with the International Energy Agency on possible options for coordinated action, according to a statement late Saturday.
Whether the Strategic Petroleum Reserve, the world’s largest supply of emergency crude, gets used may depend on how quickly the Saudis can resume production from the world’s biggest crude-processing facility.
Set up after the Arab oil embargo in the 1970s sent prices skyrocketing, the stockpile has previously been tapped in response to Operation Desert Storm in 1991, Hurricane Katrina in 2005, and Libyan supply disruptions in 2011.
“Until a damage assessment is available, it’s not possible to make high confidence odds on the likelihood it will be tapped,” said Bob McNally, a former energy adviser to President George W. Bush and president of the consulting firm Rapidan Energy Group.
“For now, the administration is reassuring the market that the US and other emergency stockholding partners in the IEA are ready to act.”
McNally said showing openness to an SPR release would have an impact.
“Almost no geopolitical risk is priced into oil markets focused solely on trade wars and macro concerns,” said Joe McMonigle, senior energy analyst at Hedgeye Risk Management LLC.
“An SPR release, especially if coordinated with IEA action, would mitigate some of the spike in oil prices but would also depend on the ongoing and elevated geopolitical risk.”
The emergency stockpile is stored in huge underground salt caverns along the US Gulf Coast.
Although it was originally created as a backup in case of future supply shocks, the reserve has more recently become Congress’s go-to piggy bank, used to fund everything from roads to drugs to deficit reduction.
About 10 million barrels were sold in the latest of a series of congressionally-mandated sales last week.
Trump proposed selling off half of the emergency stockpile in his 2017 budget request.
His administration argued that record domestic oil production made keeping such a large reserve unnecessary.
But the “potential long-term disruption from critical oil facilities” such as the 5 million barrel-per-day Abqaiq processing facility hit on Saturday, “is exactly the type of risk the Strategic Petroleum Reserve was designed to mitigate,” McNally said.