U.S. to Sell 5 Million Barrels of Strategic Reserve: A Message to Russia?

Based on the DOE formula, the base price for the crude is $101.4020 per barrel, but that will be discounted base on the oil’s API gravity. For sour crude with an API gravity of 17, for example, the discount is $2.30 a barrel.

The U.S. Energy Information Administration reported Wednesday that the nation’s commercial inventory of crude oil rose by 6.2 million barrels in the week to March 7. Combined with the news of the sale from the SPR, the price of West Texas Intermediate (WTI) closed at $97.99 last night, down 2% on the day and the lowest close since early February.

We noted earlier this month that energy economist Philip Verleger called for the Obama administration to announce the sale of 500,000 barrels a day from the SPR as a way to apply an economic sanction on Russia for its incursion into Ukraine. Perhaps this is a warning shot that the administration is considering just such a move.

And as Platts pointed out in its blog Wednesday, the timing of this sale is no accident, as Ukraine’s interim president was meeting at the White House with President Obama.

There are nearly 700 million barrels of crude in the SPR. Under the agreement with the Organisation for Economic Co-operation and Development (OECD), the United States is obligated to maintain a 90-day supply in reserve. The U.S. could sell as much as 200 million barrels from the SPR over the next two years and still remain in compliance with the OECD obligation.

WTI prices climbed a bit Thursday morning, up about 0.2% at $98.17. Brent was flat at $108.02. Because Russian crude is priced against Brent, the announced sale from the SPR only dropped Urals crude by $0.40 a barrel, according to Platts. The threat of a larger sale — and the potential damage it would do to the Russian economy over the next year or two — may give Russian President Vladimir Putin a moment’s pause while he puts his shirt back on.