Everyone is worried about high oil and gasoline prices. Furthermore, turmoil in the Middle East could lead to a major disruption in supply sending prices even higher.
Many analysts think that the next move is to tap the U.S. Strategic Petroleum Reserve. Here’s some commentary from Morgan Stanley’s Global Energy Playbook, which was published this week.
Fears surrounding a potential supply disruption have raised concerns over available spare capacity. The market’s growing concern about spare capacity has again come into focus with OPEC production at multi-year highs. The market may need to replace anywhere from 0.8 to 2.0 mmb/d of Iranian exports this summer, while a worst-case scenario may involve a closure of the Strait of Hormuz, where 15-17 mmb/d of oil flows. These instances could necessitate both an increase of OPEC production and a release of strategic petroleum reserves (SPR).
Despite OPEC reassurances, an SPR release may be at hand. A closure of the Strait of Hormuz would necessitate a global SPR release. With the potential to release 14.4 mmb/d within 1-2 weeks, the IEA’s global SPR should be sufficient to offset what would likely be a short-lived disruption. Moreover, recent reports suggest the US and UK may be planning a pre-emptive release, which has helped cap the recent rise in crude prices.
A release of the SPR would have a major impact on prices. Here’s a review of the last 7 SPR releases and how the moved Brent, West Texas Intermediate, and Louisiana Light Sweet prices:
Photo: Morgan Stanley