The world’s oil-consuming nations are showing growing unease about the rapidly tightening global crude oil market and are considering releasing oil from their strategic petroleum reserves. On Friday, Bloomberg News reported that the Trump Administration is reviewing options ranging from a 5 million-barrel test sale to the release of 30 million barrels from its oil reserve to cool pump prices ahead of congressional elections in November and as sanctions on Iran are due to snap back.
On Monday, the Wall Street Journal reported that the International Energy Agency is also considering releasing oil supply. The Journal quoted Fatih Birol, director of the International Energy Agency, a group that advises industrialized nations on energy policy and coordinates emergency oil releases globally. It's being reported that he told a private dinner last month that a release was an option if supply outages worsen, according to people at the dinner.
Iran was pleading to not go there. Bloomberg reported that a senior Iranian oil official urged U.S. President Donald Trump not to use the nation’s Strategic Petroleum Reserve to push prices lower, and instead drop sanctions on Iran’s crude exports. “My advice to you, Mr. President, is to avoid touching the SPR - to cool down and give up sanctioning Iranian oil," Hossein Kazempour Ardebili, Iran’s representative to OPEC, said by e-mail.
The release of oil from global reserves that some believe are for short-term political purposes may lead us down a slippery slope that may backfire in the end. Trying to use the oil reserve to try to control prices might prove fruitless because it may not slow growing demand and underinvestment is the main reason for the tightening supply. On top of that, talk of more oil from Saudi Arabia and the fact President Donald Trump is going to bring up oil with Russian President Vladimir Putin in Helsinki is also pressuring prices in the short term. It would be better to let the market work and slow demand mainly because the worlds spare production capacity is near historic lows.
Yet, even the talk of a release from the global strategic petroleum reserves shows how far the global economy has come in the last few years. The drawdown from the biggest oil glut in history in large measure was driven by a strong U.S. economy that helped lead the world through economic muck we had been sloshing through. Underinvestment in oil and a false assessment on shale oil ability to be a swing producer caught many by surprise. Now relying on the bullpen to ease prices is going to fail and may discourage more oil investment.
Trump has the authorization to release more oil and the Saudis are offering more oil as well. Bloomberg reported that Saudi Arabia offered additional cargoes of its Arab Extra Light crude to at least two buyers in Asia, people familiar with the matter said.