President Obama may authorize the Department of Energy to release oil from the Strategic Petroleum Reserve in a preemptive move to head of $100 prices, according to a report from Citi Research making the rounds on trading floors Wednesday.
A confluence of forces including tensions in Syria and Iran, hurricanesand the possibility of additional stimulus from the Federal Reserve all point to higher oil prices , giving the U.S. plenty of reasons to release some crude from the SPR and coordinate with Saudi Arabia to draw down its stocks as well, stated the report.
“In recent weeks, the probability of a coordinated release of strategic stocks has risen significantly,” wrote Eric Lee, commodities analyst at Citi, in the note.
“Global refining runs are poised to move into their seasonal autumn trough, meaning an SPR release over this period could be more effective. And with speculators relatively long, shaking out this length could ease pressure on oil prices.”
Oil dropped Wednesday morning following the release of the controversial report from Citi, traders said, but prices soon recovered most of that decline. Prices are up 13 percent over the last three months.
Traders have waited for any indication from the administration that an SPR release could occur. However, the chances of a pre-emptive release, as suggested by Citi, will be greatly reduced as Election Day approaches because the President would be accused of doing it purely to give a short-term boost to consumers’ pockets.
“If there was a release of the SPR at this point, I believe the market would interpret it as purely political and a desperate act,” said James Iuorio of TJM Institutional Services.
Still, if oil shoots through $100, Syria collapses, or Israel threatens a strike on Iran, the administration may have good reason to release from the emergency fuel storage this Fall.
“Our view is that the risk of an Israeli unilateral attack ahead of U.S. elections in November is substantial, yet more likely in the first half of 2013,” wrote Citi’s Lee.
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