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The US is not considering releasing oil from its strategic petroleum reserve, signalling Washington believes any surge in prices following its attack on Iran will be limited.
There have been “no discussions at all about the SPR”, a Department of Energy official told the FT, when asked about preparations the Trump administration had made to prevent a surge in crude prices that could dent the economy and send consumer prices higher.
Oil prices are expected to jump on Sunday when markets reopen at 6pm in New York as traders react to concerns the war could disrupt oil supplies in the Middle East. Brent, the international benchmark, settled at $72.87 a barrel on Friday.
The US strategic reserve holds about 415mn barrels of oil, a portion of which could be drawn down to soothe markets as was the case in 2022 when Russia’s invasion of Ukraine pushed prices higher.
While the SPR is a valuable tool that can help to calm international markets in a crisis, it could not prevent a price shock if Iran closes the Strait of Hormuz — a narrow passage through which 20 per cent of the world’s oil supply flows.
Iranian media on Saturday reported the strait had been “effectively” closed after the country’s elite Revolutionary Guards warned some vessels that passage through it was unsafe.
Although vessels have continued to transit the strait since the attacks began this morning, transponder data from MarineTraffic suggests the flow among large commercial vessels making the journey is falling away, particularly for ships travelling westward into the Gulf.
Kevin Book, research director at ClearView Energy Partners, a Washington-based consultancy, said: “The US SPR still has plenty of oil to flow in an emergency, but when it comes to strategic stocks, duration matters. Scale does, too. A full Hormuz crisis could outstrip offsets provided by strategic stocks in the US and International Energy Agency members.”
Members of Opec+, the oil producer group, could decide to significantly increase their output in an attempt to calm the markets, said analysts and people familiar with the discussions.
A meeting scheduled for Sunday was widely expected to approve an increase of 137,000 barrels a day for April, but one person close to Opec+ suggested members could greenlight an increase of three or four times that sum.
Book said: “We already expected the eight Opec+ countries participating in voluntary production cuts to add supply back to the market at their scheduled meeting tomorrow and today’s hostilities could spur a bigger addition.”
Michael Alfaro, chief investment officer of hedge fund Gallo Partners, which is focused on energy and industrials, added that, “I think we are going to get a spike in the oil price but it it’s not going to go over $100 because Opec is likely going to announce emergency supply additions.”
Washington set up the strategic reserve in the aftermath of the 1973-74 oil embargo when Arab members of Opec cut off supplies to western countries supporting Israel during the Yom Kippur war. The embargo caused oil prices to almost quadruple and pushed the global economy into recession.
Additional reporting by Chris Cook, Jamie John, Malcolm Moore and Verity Ratcliffe in London