Oil Market Turmoil: US Draws Up SPR Plan, Iraqi Exports Flag, and OPEC Capacity Uncertainty

Strategic Insights -

The US administration is preparing to use crude oil from the 570mn bl Strategic Petroleum Reserve (SPR) to stabilize oil prices, with emergency oil release possible within two weeks of presidential approval. Iraqi crude exports have dropped to 1.69mn b/d, and OPEC's collective capacity is 32.32mn b/d, below June estimates due to limitations in Kuwait and Libya. Meanwhile, Mexico is considering a 200,000 b/d increase in crude exports following OPEC's decision to raise production.

Key Takeaways:

  • The US is planning to use SPR oil to stabilize prices, with emergency release possible within two weeks of presidential approval.
  • Iraqi crude exports have dropped to 1.69mn b/d, with a target of 3mn b/d, just above the August level.
  • OPEC's collective capacity is 32.32mn b/d, 160,000 b/d below June estimates, due to limitations in Kuwait and Libya.
  • Mexico is considering a 200,000 b/d increase in crude exports following OPEC's decision to raise production.
  • US oil companies would be loaned oil from the SPR to replenish it when market conditions stabilize.
  • One draft plan allows firms to replenish the SPR with oil produced from federal land instead of paying cash royalties.
  • Lawmakers from the heating oil-dependent northeast are strong advocates for using the SPR.
  • The DoE is establishing a 2mn bl heating oil reserve for this winter.
  • Oil minister Sheikh Saud Nasser al-Sabah says Kuwait has "very limited" spare capacity.
  • Saudi Arabia's oil minister Ali Naimi says his country can raise output to 10.5mn b/d in 90 days.

Statistics:

  • 570mn bl of oil in the US Strategic Petroleum Reserve (SPR).
  • 1.69mn b/d crude exports from Iraq in the week to 8 September.
  • 2.32mn b/d Iraqi crude exports in August.
  • 32.32mn b/d OPEC's collective capacity, 160,000 b/d below June estimates.
  • 200,000 b/d increase in Mexican crude exports under consideration.
  • 3.2mn b/d of crude oil produced by Mexico, of which 1.76mn b/d is exported.
  • 1.56mn b/d Cantarell field production.
  • 70% of Premier Oil's 2000 production hedged at $19.54/bl.
  • 26.80/bl Brent price in the first half of 2000.
  • 6% increase in US gasoline and distillate demand.
  • 5cts./USG VGO margins in the US.
  • 86cts./USG low-sulphur VGO price in the US.
  • 20% increase in low-sulphur VGO prices in northwest Europe since late July.
  • 160,000 b/d VGO imports from Europe and Latin America to the US.
  • 50,000 b/d VGO imports from Europe to the US.
  • 100,000 b/d lower non-OPEC supply forecast by the IEA.
  • 27.9mn b/d OPEC oil call revised down by 200,000 b/d by the IEA.
  • 900,000 b/d OECD oil stockbuild in the second quarter.
  • 165mn bl lower OECD stocks in August compared to a year earlier.
  • 31mn bl lower OECD stocks in August compared to 1997.

Sources:

  • US Department of Energy (DoE) officials
  • American oil companies
  • OPEC delegates
  • Oil minister Sheikh Saud Nasser al-Sabah (Kuwait)
  • Saudi Arabia's oil minister Ali Naimi
  • US presidential election candidates
  • Lawmakers from the heating oil-dependent northeast
  • DoE's 2mn bl heating oil reserve plan
  • AGM, 17 July, p4
  • AGM, 11 September, p4
  • AGM, 26 June, p3
  • AGM, 21 August, p2
  • AGM, 3 July, p5
  • AGM, 14 August, p3
  • IEA's Monthly Oil Market Report
  • Argus Euroilstock Inventory Report