Strategic Reserves Drumbeat Beats Back Oil Prices, for Now
NEW YORK ( TheStreet) -- It's become a fad for European leaders to get the word out about strategic petroleum reserves being tapped to cut off rising oil prices, while hinting that the U.S. is really the mover and tapper behind the plan.
First, U.K. officials leaked to Reuters a few weeks ago a plan they said was being hatched by the U.K. and U.S. to release strategic petroleum stockpiles, a leak the White House quickly denied.
This week it's been France's turn. On Wednesday -- and for the second time in a week -- French Industry Minister Eric Besson went on record to say the country would welcome releasing emergency stocks. This came a day after the White House went about as far as it will go in the coy game it is playing when it comes to strategic oil reserve politics, when an official from the U.S. Energy Department said at a hearing it was considering a release from the U.S. Strategic Petroleum Reserve.
The expectation is for the U.S., the UK, Japan and France to lead a potential release of their strategic oil reserves in the next three months, according to a report in the Financial Times . Meanwhile, the International Energy Agency, based in Paris, which has previously coordinated strategic oil releases, sticks to the actual supply/demand scenario in arguing that the market does not need more oil.
"It seems this drumbeat is growing until it becomes deafening," wrote Summit Energy analyst Matt Smith.
Crude oil sold off sharply on Wednesday morning, with Brent crude down by more than 1% and WTI crude down by 2%.
There were some ancillaries to the French comments that may have helped drive crude oil lower: The American Petroleum Institute and Department of Energy's Energy Information Administration weekly reports showed a build in U.S. crude supply. The DOE reported supplies grew by 7.1 million barrels, or 2.1%. There were also reports that Iran will meet with representatives from six countries to discuss its nuclear program in mid-April.
It makes sense for European leaders to lead the strategic oil tap march -- without coordinated action from the European Union, as many as 26 nations, there is little the U.S. can alone do to drive down global oil prices. The last time strategic reserves were tapped over a period of months in 2011, it worked to drive prices lower, sort of.
The API and DOE reports don't tell the market something it doesn't already know, though. In fact, the irony of U.S. crude supply/demand is that it's been running near historic high levels since last year. For the first time since 1949, the U.S. was a net exporter of crude oil in 2011. The latest weekly build put U.S. crude stocks 0.7% lower than the year-ago level, a relatively small difference. In fact, the latest crude inventory report shows a market in a normal range in terms of supply, and that is one more argument for critics who contend that tapping the SPR to put more supply onto the market is not addressing the issue at hand.