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US considering SPR release coinciding with Venezuela sanctions: sources

Washington — The Trump administration is considering a release from the US Strategic Petroleum Reserve that would be timed to coincide with the imposition of possible sanctions on Venezuelan oil exports, sources familiar with the administration's thinking said Monday.

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The SPR release would be aimed at blunting the impact of the loss of roughly 500,000 b/d of Venezuelan crude on US Gulf Coast refiners if strict sanctions were imposed, sources said.

These sources cautioned, however, that administration officials had made no decision on an SPR release, nor had they made a decision on whether or not to impose sanctions on Venezuela's oil sector.

An SPR release coupled with oil sanctions was simply one of the options being considered by the Trump administration, the sources said.

A release from US government oil stocks is likely to receive some opposition within the administration and would not be able to perfectly replace lost imports of Venezuelan crude since the SPR does not contain heavy crude, which is generally considered to be crude grades with API gravity below 22.3 degrees.

"SPR crude oil is primarily light API gravity oil (>31.1degreesAPI), with the remainder consisting of medium gravity oil (between 22.3degrees and 31.1degrees)," the US Department of Energy, which manages the SPR, said in a 2016 report to Congress.

But this is unlikely to prevent the administration from authorizing an SPR release, according to a recent note from ClearView Energy Partners.

"Although, chemically speaking, light-to-medium SPR barrels tend to be poor substitutes for Venezuelan heavy barrels, the prospect of a volumetric shortfall could spur the Trump Administration to release SPR crude anyway," ClearView analysts wrote last week. "Adding volume back to a tight market has potential to tamp down benchmark prices, and with them, pump prices (a Presidential priority)."

Bob McNally, president of Rapidan Energy Group, suggested that if the Trump administration imposed Venezuelan oil sanctions it could authorize an SPR exchange, in which SPR crude would essentially be "loaned" to US refiners with an agreement for repayment with additional crude as interest. The DOE has authorized 12 such exchange agreements since 1996, in response to hurricanes and waterway closures.

"I have not heard this is likely or even under consideration," McNally said. "But it's an option suited to Venezuela."

In September, US Secretary of Energy Rick Perry said he opposed a release of SPR crude in order to blunt the impact of reimposed sanctions on Iranian oil exports.

Perry denied that the administration was even considering an SPR release and said even if SPR crude was released onto the market, it would have a "fairly minor and a short-term impact."

The SPR was dedicated to true supply emergencies, Perry said, and with the market well-supplied ahead of the reimposition of Iran sanctions, he added that he did not expect one.

But Kevin Book, managing director at ClearView, said Venezuela sanctions may be a better fit for an SPR release than Iran sanctions were.

"First, Venezuela sanctions could produce an abrupt volumetric shortfall, whereas the Iran sanctions came with six months of lead time," Book said. "Second, a Venezuela disruption seems likely to be relatively short-lived compared to Iran sanctions, which could remain in force for years (and might)."

The SPR currently holds 649.1 million barrels of crude in four separate sites along the Gulf Coast. The SPR's inventory includes 254.6 million barrels of sweet crude and 394.5 million barrels of sour crude.

-- Brian Scheid,

-- Edited by Keiron Greenhalgh,