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Is The SPR Release Already Priced Into Oil Prices?

Tyler Durden's picture




 

As the rumor (and denial) of the potential release of the SPR washed out Crude and Brent prices last week, only to recover within 24 hours, we wonder if this was all the bang for the buck that these kind of pre-announcements will get. With the majority of crude reserves based in the US and product reserves based in Europe and spare capacity falling as OPEC picks up production even as Iran backs off, Morgan Stanley notes that the maximum stocks drawdown of the SPR in month 1 could average 14.4mmb/d (10.4mmb/d  of crude and 4.0mmb/d of products) which is enough to mitigate flows passing through the Strait of Hormuz (according to the IEA). However with only 90 days of cover at these rates, it is hardly the 'solution' to even the briefest of geopolitical disruptions. This perhaps explains the price action of previous SPR announcements, which varies by crude benchmark, but holds prices lower for a maximum of two weeks. Most notably, the greatest price drops on the SPR announcement tend to occur in the first 2-3 days (and in the very front months) at which point the term structure starts to increase once again. Louisiana Light tends to be hit the most followed by Brent and then WTI but the rebound is just as aggressive and we wonder if last week's rumor was merely a strawman to see just what impact was possible (we dropped 2-3% or so) and recovered rapidly compared to the 4-5% drop in June during the Arab Spring release (which was the largest release in the last 20 years).


 

Chart: Morgan Stanley

 

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Tue, 03/20/2012 - 08:54 | 2272744 Cranios
Cranios's picture

I call it the Strategic Re-election Reserve!

Tue, 03/20/2012 - 09:01 | 2272764 GeneMarchbanks
GeneMarchbanks's picture

Zing!

Tue, 03/20/2012 - 09:01 | 2272767 GetZeeGold
GetZeeGold's picture

 

 

Poor Berry has to be so very very confused at this point.

 

Necessarily rise......re-election.....necessarily rise......re-election.

 

Tue, 03/20/2012 - 09:14 | 2272818 AU5K
AU5K's picture

OBAMA, 2013:

 

"My new Making Gas Affordable plan will require everyone to pay into a gas ticket system, based on your income level.  Then, we will give out these tickets to everyone based on their need.  $2.50 gas is right around the corner."

Tue, 03/20/2012 - 09:42 | 2272909 the not so migh...
the not so mighty maximiza's picture

OBAMA 2012: Hey, it could be worse

Tue, 03/20/2012 - 09:48 | 2272929 GetZeeGold
GetZeeGold's picture

 

 

I think the word you're looking for is better actually.

 

Tue, 03/20/2012 - 10:27 | 2273026 Flakmeister
Flakmeister's picture

Santorum or Romney??? Ok.... sure, what ever floats your boat...

At least Obama did not make his bucks looting companies and killing jobs...Otherwise Romney is the White Mormon equivalent of B0 who has no equal in flip-flops and pandering...

As for Santorum, are you fucking serious??? Only if you fantasize about the end of days and think the christian version of sharia law is for you....

Tue, 03/20/2012 - 09:11 | 2272752 Mercury
Mercury's picture

Oil is becoming the new UST I think and because of its utility value it crowds out gold sometimes too as not everyone who is looking for a store of value needs to be able to put it in their pocket and run for the border.

Whatever happened with Einhorn's take-delivery-and-store-it trade?

Tue, 03/20/2012 - 08:58 | 2272757 The Axe
The Axe's picture

The oil market is the thinest most corrupt market in the universe...please...its more broken then the equity markets....joke

Tue, 03/20/2012 - 09:00 | 2272762 AU5K
AU5K's picture

Could someone remind me what the emergency is? 

 

Oh, right, high prices in an election year.

Tue, 03/20/2012 - 09:07 | 2272782 lizzy36
lizzy36's picture

Government made emergency.

The Iran sanctions, had unintended consequences. That the geniuses in the WH, hadn't expected. Apparently when Geithner came up with his economic sanctions model, he didn't have a "oil going higher" as a variable. How shocking is that?

Tue, 03/20/2012 - 13:46 | 2273324 Urban Roman
Urban Roman's picture

It's the old conundrum of central planning.

They must choose between artificially low prices and shortages. In the PM markets, shortages don't matter (unless you were an MFG client). In the hydrocarbon markets, they are immediately apparent.

(note: it is also why refineries are closing -- they are very expensive and must be built for a 25 or 30 year time horizon -- if price manipulation is going to make money losers of them, you shut them down)

Tue, 03/20/2012 - 09:06 | 2272771 monopoly
monopoly's picture

I remember, back in the day of a real nation, that SPR was to be released only for a state of dire emergency in this country. Earthquake, war, middle east cutoff, other natural disasters.

I did not get the memo that it was to be used for Presidential elections and to reduce the price of gas at the pump by .20 cents due to inconvenience for the consumer.

Tue, 03/20/2012 - 09:09 | 2272796 Mercury
Mercury's picture

...wait 'till we find out they've sold off the family silver/gold too.

Tue, 03/20/2012 - 09:07 | 2272789 JohnKozac
JohnKozac's picture

Oil and palladium are the best two investments right now my financial advisor says. Russia controls a huge amount of the metal and has just entered Syria to "protect the civilians" .....while the instability and new "democracy" in Iraq spur oil prices.

 

http://worldnews.msnbc.msn.com/_news/2012/03/20/10770419-wave-of-bombs-k...

http://abcnews.go.com/Blotter/russian-anti-terror-troops-arrive-syria/st...

 

Tue, 03/20/2012 - 09:10 | 2272799 Jim in MN
Jim in MN's picture

Some semi-inside poop on Israel's preparations for war

http://www.bloomberg.com/news/2012-03-19/israelis-grow-confident-strike-...

One conclusion key officials have reached is that a strike on six or eight Iranian facilities will not lead, as is generally assumed, to all-out war. This argument holds that the Iranians might choose to cover up an attack, in the manner of the Syrian government when its nuclear facility was destroyed by the Israeli air force in 2007. An Israeli strike wouldn’t focus on densely populated cities, so the Iranian government might be able to control, to some degree, the flow of information about it.

Some Israeli officials believe that Iran’s leaders might choose to play down the insult of a raid and launch a handful of rockets at Tel Aviv as an angry gesture, rather than declare all-out war. I’m not endorsing this view, but I was struck by its optimism. (A war game held by the U.S. military this month came to the opposite conclusion, according to the New York Times: A strike would likely lead to a wider war that could include the U.S.)

Tue, 03/20/2012 - 09:11 | 2272801 knukles
knukles's picture

Is a release priced in?  Yes.
Is a M/E war priced in?  No, for the unintended consequences are unimaginable.

Tue, 03/20/2012 - 09:11 | 2272802 Sudden Debt
Sudden Debt's picture

Why don't we just kill off all the remaining whales and squeeze every oil drop from their carcasses to fill up our cars?

JUST ASK GREENPEACE WHERE THEY ARE!! TRACK AND TRACE BITCHEZ!!!

 

 

Tue, 03/20/2012 - 09:14 | 2272816 Jim in MN
Jim in MN's picture

You know, YOUR carcass is looking a little oily today....why don't you just step over here....behind this garage for a minute...

Tue, 03/20/2012 - 09:13 | 2272813 kralizec
kralizec's picture

NY Times.  Meh!

Tue, 03/20/2012 - 09:16 | 2272822 Flakmeister
Flakmeister's picture

The SPR was always meant for the military... now it is a political talking point...

All this talk is the tell of how fooked we really are.... 

Be careful about chasing crude.... we are getting to the point where somebody tips over and it will not be pretty...

Tue, 03/20/2012 - 09:37 | 2272890 Flakmeister
Flakmeister's picture

Oh yeah, I believe the daily extraction rates quoted for the SPR above are horseshit... IIRC, it is 2 mmbpd max...

Tue, 03/20/2012 - 09:40 | 2272899 the not so migh...
the not so mighty maximiza's picture

SPR releases take months to work into economy anyway, and won't even be signaficant to change anything.

Tue, 03/20/2012 - 10:03 | 2272962 ThisIsBob
ThisIsBob's picture

So at best, the release will have to be timed to drive down the price of gasoline (if possible) going into elections?

Maybe all those anti-Obama PAC funding gazillionaires should just buy oil instead?

Tue, 03/20/2012 - 10:15 | 2272998 Lost Wages
Lost Wages's picture

It appears "priced in" is a meme here.

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