US plan to sell oil reserves shows declining import needs

Sale to span 10 years, equivalent to 95,000 bpd

SINGAPORE/VIENNA, May 23, (RTRS): President Donald Trump’s proposal to sell half of the US strategic oil reserve highlights a decline in the biggest oil user’s reliance on imports — and a weaning off OPEC crude — as its domestic production soars.

The US Strategic Petroleum Reserve (SPR), the world’s largest, holds about 688 million barrels of crude in heavily guarded underground caverns in Louisiana and Texas.

Congress created it in 1975 after the Arab oil embargo caused fears of longterm spikes in motor fuel prices that would harm the US economy.

The White House budget, which will be delivered to Congress on Tuesday, proposes to start selling SPR oil in fiscal 2018, which begins on Oct 1. The sales would generate $500 million in the first year, documents released by the administration showed.

Sales from the reserve would gradually rise over the following years, peaking at nearly $3.9 billion in 2027, and totalling nearly $16.6 billion from 2018 to 2027.

A release of half over 10 years averages about 95,000 barrels per day (bpd), or 1 percent of current US output.

Although the figure is equivalent only to the output of a mid-sized field, it sends a powerful signal about the United States’ decreasing need for imports as its own production reaches new highs.

Since the US shale oil boom began at the start of this decade, imports have fallen sharply — sometimes to as low as 7 million bpd, from as high as 10 million bpd in the middle of the last decade.

“The United States definitely don’t need as much SPR as they have now lower imports,” said Amrita Sen of the consultancy Energy Aspects, noting that the drive to reduce the SPR had started under former president Barack Obama.

“While the headlines may be bearish, not only is this just a proposal that is unlikely to make it past Congress, it is also phased over 10 years ... So we do not see this as bearish for fundamentals even though the headlines won’t help,” she added.

PVM brokerage also agreed the plan, if implemented, would not add dramatically to global oversupply.

The Organization of the Petroleum Exporting Countries, of which the United States is not a member, meets this week, and is widely expected to extend production cuts by nine months to March 2018 to help the market rebalance.

Benchmark Brent and US light crude prices were broadly flat at 1230 GMT, having recouped earlier losses of around 1 percent.

Olivier Jakob from Swiss-based Petromatrix consultancy agreed the sales would result only in a small amount of additional supply in coming years.

“To maximize budget revenues we would suggest to the White House to copy for once what Mexico does, and to use any price support provided by OPEC cuts to hedge the forward release of SPR barrels,” he said.

The West’s energy watchdog, the International Energy Agency (IEA), has said oil market rebalancing was on the way and foresaw a significant drop in stock from current record levels of 3 billion barrels in the next few months.