Margin Hiker-In-Chief Awakes: White House "Dusting Off" Plans For Strategic Petroleum Reserve Release
It must be election season because moment ago Reuters just reported that the White House is "dusting off old plans on a potential SPR release as prices rise" according to a source with knowledge of the situation. This too, just like the earlier Corzine news, should not be a surprise. Obama made it expressly clear that with the election fast approaching, he would either force the CME to hike margins, which is also coming, or would proceed with the far dumber step of an SPR release, just so China can full up its own strategic release faster and at a lower cost. The spun version, of course, has to do with Iran, and the fear of "undermining" Iran sanction success. The same sanctions which the US granted key Iran client China a compliance waiver...
The White House is "dusting off old plans" for a potential release of oil reserves to dampen rising gasoline prices and prevent high energy costs from undermining the success of Iran sanctions, a source with knowledge of the situation said on Thursday.
U.S. officials will monitor market conditions over the coming weeks, watching whether gasoline prices fall after the Sept. 3 Labor Day holiday, as they historically do, the source said.
It was too early to say how big a drawdown would be from the U.S. Strategic Petroleum Reserve and, potentially, other international reserves if a decision to proceed was taken, the source said.
Oil prices have surged in recent weeks, with Brent crude prices closing in on $120 a barrel, up sharply from around $90 a barrel in July. The United States and other Group of Eight countries studied a potential oil release in the spring but shelved the plans when prices dropped.
With prices high again, U.S. officials were now collecting information from the market about potential needs and studying futures, production numbers and data on Iranian oil exports.
"The driving force in this is both impact on the economy and impact on the Iran sanctions policy," the source said, noting that Washington did not want rising oil prices to create a windfall for Iran while oil embargo and international sanctions were having an effective impact.
The United States has yet not held talks with international partners about a coordinated move. The source noted that Britain, France, Germany and other partner nations in the Paris-based International Energy Agency were receptive to a potential release a few months ago when conditions were similar.
Those countries were concerned about the impact of high oil prices on the global economy and Iran then, and those concerns "remain equally relevant today."
Oil for now is not buying it for the simple reason that with cross-asset correlations at one, a Strategic Petroluem Reserve release would also means an interim S&P 500 top.