MW: Oil sale from SPR raises questions of timing, politics
DOE has sensible reasons for its oil sale, but analysts speculate other motives
SAN FRANCISCO (MarketWatch) — The U.S. government picked an unusual time to announce that it is putting up to 5 million barrels of oil from the Strategic Petroleum Reserve for sale.
It’s adding oil to the market at a time when prices for the commodity are on the decline and domestic supplies of it are growing.
The Department of Energy said on Wednesday it was conducting the “test drawdown and sale” to help it assess the capabilities of the distribution system, but analysts were curious about the timing and questioned whether what’s going on in the backdrop of the oil markets, particularly political turmoil in Ukraine and Libya, had anything to do with it.
U.S. prices for West Texas Intermediate (WTI) crude fell 2% on Wednesday, the day the government released a notice of a “test sale” of sour (high-sulfur) crude from the SPR. The announcement came on a day when the market saw separate data showing domestic supplies and global production on the rise.
It’s “very interesting in terms of timing, and I’m not sure why the announcement came out on a day of a large crude-oil stock build,” said Tom Kloza, chief oil analyst at GasBuddy.com.
The U.S. Energy Information Administration reported that crude supplies for the week ended March 7 climbed 6.2 million barrels — nearly three times more than the market expected. That marked the eighth-consecutive weekly inventory climb.
Separately, the monthly oil report from the Organization of the Petroleum Exporting Countries showed that total production from the group of major oil producers rose past 30 million barrels a day in February, based on secondary sources, up nearly 259,000 barrels from a month earlier.
News of the SPR sale also comes as oil, based on OPEC’s daily basket price of certain types of crude oils, stood just above the $100-a-barrel level that’s often seen as the cartel’s “fair” benchmark price. OPEC’s basket price was at $103.75 on Wednesday. On the New York Mercantile Exchange, futures prices CLJ4 +0.83% have fallen below that $100 mark, losing over 4% month to date.
“The DOE could not have picked a worst time to test the market,” said Bob van der Valk, senior editor at The Bakken Oil Business Journal.
Inventory at the Gulf Coast may soon test the all-time high of more than 198 million barrels, which was last reached in 2009, analysts have said. The start-up of the southern leg of TransCanada Corp.’s TRP -0.04% Keystone pipeline in January, which brings oil from the storage hub in Cushing, Okla. to refineries in Texas, has contributed to growing stockpiles in the area, which is home to many petroleum refineries.
So the sale of the SPR crude “may well be the straw breaking the crude-oil price camel’s back,” van der Valk said.
Simple reason
For the DOE, however, the reasoning behind its decision was actually quite simple.
