Basically my opinion is that the release from the SPR will not be very effective in reducing retail gasoline prices, but will be effective in postponing a potential oil and/or gasoline shortage. As it is becoming clear, not only did OPEC not increase exports as expected two weeks ago, but is reducing them. There was further confirmation of this today, although as of now the total reduction is not very significant. But perhaps the most significant thing about OPEC exports in the last 3.5 months is not the amount of oil shipped, but how less is being sent to the US.
After we get through the summer driving season in the US, the next potential supply problem won’t come up until almost winter. As of now, shortages may still develop next winter if output from Libya is not restored, and OPEC maintains its export levels as they are now. I’m guessing the SPR was planned with the expectation that Libya would be back shipping by fall, although at best, I doubt Libya under any circumstance could even get up to 50% of its former level by year end.
It may be surprising to know that this SPR release is the biggest ever, which by implication, means that the Department of Energy may think this to be a very serious shortage - since they are releasing even more oil than in the prior crisis of the early days of the Iraq war and Hurricane Katrina. See:
fossil.energy.gov
Note that only 40% of the SPR is light sweet, so they are using up about 10% right here.
The Colonial Pipeline, which ships great qualities of refined products from Louisiana to points mostly along the East Coast is expanding this summer. By the time the SPR oil is refined along the Gulf Coast region, it may be ready to be shipped north and eastward with their 2011 expansion. The pipeline has been operating close to maximum capacity so far in 2011. See:
colpipe.com
What then will happen next time there is a pending shortage? Probably the same thing.
Charles Mackay on July 1, 2011 - 11:52am
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