The U.S. Energy Department announced on Thursday that it would release 500,000 barrels of crude oil from the US Strategic Petroleum Reserve as a result of the disruption to the US petroleum industry following Hurricane Harvey amid fears of a surge in motor fuel prices, which have been compounded by the previously reported shuttering of the Colonial pipeline. According to the DOE statement, the oil will be delivered to the Phillips 66 refinery in Lake Charles, Louisiana, a plant which has not been affected by the storm.
According to Reuters, the release - the first emergency release from the reserve since 2012 - will include 200,000 barrels of sweet crude and 300,000 barrels of sour crude oil. It was an exchange agreement, meaning the government will loan crude to Phillips 66, which is required to replace the reserve’s oil at a later date.
The Energy Department “will continue to provide assistance as deemed necessary, and will continue to review incoming requests for SPR crude oil,” spokeswoman Jess Szymanski said.
The reserve, a legacy from the 1970s Arab oil embargo which caused panic over fuel supply, currently contains 679 million barrels of oil. It is a small release of crude for a country that uses nearly 20 million barrels of petroleum daily.
Furthermore, it is unclear what if any benefit the SPR release will do to surging gasoline prices, as the bottleneck is not oil supply but rather refining capacity: as of this moment roughly 20% of US refining is offline as a result of Harvey. As we reported this morning, gasoline prices surged in morning trade after the Colonial Pipeline which operates the biggest U.S. fuel transport system, said it would shut its main lines to the Northeast amid outages at pumping points and lack of supply from refiners.
Separately, and confirming that the gasoline price spike may last longer than initially expected, moments ago Reuters reported that Motiva Enterprises' Port Arthur, Texas refinery, the largest in the US, may be shut as long as two weeks for assessment of the plant and repair of any damage, sources familiar with plant operations said on Thursday. The 603,000 barrel per day (bpd) Port Arthur Refinery was shut on Wednesday due to flooding from Tropical Storm Harvey.
And while gasoline has soared to 2 year highs as shown earlier...
... it now appears that the euphoria has also shifted to oil, which moments ago spiked sharply higher, even if the catalyst for the move was not initially clear.