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    US Republicans Proposal of Oil Sales From Strategic Reserves Questionable

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    The Republican proposal to sell crude from the US Strategic Petroleum Reserve (SPR) to collect funds for infrastructure projects is questionable and problematic, experts told Sputnik.

    MOSCOW (Sputnik) — A summary of Senate Republicans' new three-year transportation funding bill released on Tuesday proposes to sell 101 million barrels of crude oil from the US SPR in 2018-2025 to collect $9 billion for road and rail projects.

    "I can’t believe the costs of renovation are so high that you’d need to sell off your entire strategic reserve. Renovations and repairs are not exactly a prohibitive expense, and especially if you can take out loans. I’m sure you could do plenty of renovations even if you just sell off a fraction of the strategic reserves," Michael Kugelman, senior associate for South and Southeast Asia at the Woodrow Wilson International Center for Scholars said.

    Speaking about the oil prices, Kugelman noted that it was premature to forecast large-scale price decreases, because "more time will be needed for Iran to start releasing more energy resources and because we don’t know how much of its strategic reserves the US would want to sell off."

    Iran and six world powers on July 14 reached a final agreement, guaranteeing the peaceful nature of Tehran's nuclear program in exchange for the lifting of international sanctions and resumption of international cooperation with Iran, including in oil and gas sectors.

    "The nuclear agreement [with Iran] could result in another 700,000 barrels per day entering onto the global market by the end of the first quarter of 2016. Assuming no incremental geopolitical crisis, this could push oil prices lower," Henry Lee, Director of the Environment and Natural Resources Program at the Belfer Center for Science and International Affairs stated.

    According to Lee, oil prices could fall another $10-15 per barrel to somewhere in the low $50 area, if coupled with a sale of US strategic reserve crude oil.

    Recommendations have been made that the United States should sell off this reserve, as it has not proven to be of sufficient value to justify its cost, but "selling the oil at a time of low oil prices would not in the financial interest of the country and would drive down crude oil prices, exacerbating the economic problems confronting the US's domestic oil companies," he said.

    Giovanni Staunovo, commodity analyst with UBS, a Swiss global financial services company, underscored that selling oil from the strategic reserve while simultaneously ignoring the US oil export ban would be problematic.

    "In case of a reduction of SPR stocks, the US oil market would be even more oversupplied, which could weigh on US oil prices," he said.

    The SPR was established in 1975, after oil was cut off during the 1973-1974 oil embargo proclaimed by Organization of Arab Petroleum Exporting Countries (OAPEC).

    The SPR is maintained by the US Department of Energy. With capacity to hold up to 727 million barrels of oil, SPR is currently the largest emergency supply of crude oil in the world. The oil reserve is stored in underground salt caverns at four sites on the Gulf of Mexico.

    In 2011, 30 million barrels of oil were sold to offset disruptions in supply caused by unrest in the Middle East, known as Arab Spring. Oil prices then dropped by more than 5 percent to below $90 per barrel.

    As of July 2015, oil prices have dropped more than twofold against 2014 summer levels, when the price of Brent crude stood at about $115 per barrel. The prices are now hovering at about $65 per barrel.

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    Tags:
    Oil, Belfer Center for Science and International Affairs, Woodrow Wilson International Center for Scholars, Henry Lee, Michael Kugelman, United States
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