The Release of Oil From US Strategic Petroleum Reserve Likely To Have Little Effect on the Price of Gasoline

Seaway reversal on track for summer execution

Two East Coast refineries shut down; a third slated (July 1)

The tea leaves suggest world leaders are getting ready for a huge coordinated release of emergency oil supplies to offset shortages due to Iranian sanctions. (Saudi Arabia has said there is no need, interestingly enough.)

Readers may be interested in re-reading a USA Today article analyzing the effects of releasing oil from the US Strategic Petroleum Reserve (SPR).

Current logistical problems may make the Strategic Petroleum Reserve's expected relief even more difficult to deliver this year than in the past. Reuters reported that the reversal of the Seaway pipeline, a major Texas-to-Oklahoma pipeline, will reduce the distribution capacity of the Strategic Petroleum Reserve's Bryan Mound, Texas site (its largest source). Additionally, last year some of the reserve fuel made it to west coast (1.2 million barrels) and east coast refiners (1.4 million barrels). But that volume is unlikely to be matched in 2012.

To repeat: in the past the SPR oil reached the Midwest (where it's hardly needed); very little reached the West Coast or the East Coast where most Americans live.

But this time it's even worse:

On the east coast, refinery capacity has been significantly reduced by two Pennsylvania refinery closings and a third (Sunoco's Philadelphia refinery) closing slated for July. The three combined represent more than 700,000 barrels per day of lost refining capacity.

As mentioned in an earlier post, if release of oil from the US SPR does not lower the price of gasoline, there is no Plan B.

Interestingly enough, the political spin may be very much like the $1 trillion stimulus. When the unemployment rate was minimally affected by the record stimulus, the political spin was that without the stimulus, the unemployment rate would have been even worse.

So, I suppose that if gasoline prices change little with the release of oil from the SPR, the political spin will be that it would have been much worse had the oil not been released.

So, we'll see.