US strategic oil reserve – Reduction in oil stock to benefit producers too

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The decision of the current American administration to sell 50 percent of its total strategic oil reserve, which is estimated to be around 700 million barrels, has been met with some concerns within the oil industry, most importantly its impact on the oil prices.

The administration is trying to reduce its overall budget deficit by selling its oil reserve, which is estimated to generate around $16 billion by the end of 2027. It will start selling in the first half of next year, generating around $500,000 in the first year, and gradually moving towards its final target of $16 billion, while the total worth is about $35 billion at the current price of crude oil.

Of course, there will be resistance against such a move, but it seems it makes some good economic sense for America, as it is gradually increasing its domestic shale oil production.

As long as the oil prices remain stable, the shale oil production will continue growing strongly until it reaches an acceptable level that allows further exploration and production for this type of oil. It depends on reduction of imported oils compared to 2006 when more than 14 million barrels were imported while currently 10 million barrels are being imported per day.

It seems majority in the US Congress are in general agreement in this regard, but not for selling such a high level of 50 percent of the total reserve. However, this will be done over a period of ten years, which is a long time, and no one can predict the future of oil prices.

There is one concern for an oil producing country — how will the decision impact the oil prices? Will it weaken the prices in the coming months?

They know that the impact of new volume that can be pumped back into the oil markets is around 75,000 barrels per day. This is not much when comparing to the total world demand of more than 96 million barrels per day, or even when comparing to the total domestic demand within USA, which is about 19.5 million barrels per day.

The American administration, in no way, wants to reduce, or force to reduce, the oil prices, as they have set a target to achieve. The higher the income, the better for the administration bookkeeping.

The idea is great to close the deficit gap and generate cash. Any additional income will be a plus if America can achieve its target on time.

Certainly, oil producers will benefit too, as any reduction in the oil stock will lead to better oil prices over the next ten years, while others may need to replenish their oil reserves again.

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By Kamel Al-Harami – Independent Oil Analyst

This news has been read 6605 times!

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