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US SPR release in response to Abqaiq, Khurais attacks likely not imminent: analysts

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US SPR release in response to Abqaiq, Khurais attacks likely not imminent: analysts

Highlights

US 'stands ready' for SPR release, agency announced

Potential SPR action tied to severity of damage

US marine capacity limits efficacy of possible release

Washington — The US said Saturday it is prepared to release crude oil out of its Strategic Petroleum Reserve following attacks on Saudi Arabia's Abqaiq processing facility and Khurais oil field, but analysts said that such a release will likely not be triggered in the short term.

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"I don't think a release is imminent," Bob McNally, president of Rapidan Energy Group, told S&P Global Platts. "Everything depends on how much damage has been done and how long will it last."

McNally, who was senior director for international energy on President George W. Bush's National Security Council, said he expects the US would coordinate any SPR release with the International Energy Agency. He said if Abqaiq returns in a few days, there likely would be no release at all.

"Only if there is a long-term disruption to the facility or expectation of increased military conflict and disruption would a release be seriously considered in my view," McNally said. "Right now, they will just reassure with verbal statements. My sense is they are not too worried about a long-term disruption, at least so far."

Kevin Book, managing director with ClearView Energy Partners, said the timing of the release depends on the extent of damage at Abqaiq.

"If there is good news to know, the Kingdom has every incentive to share it as soon and as widely as possible," Book said Saturday night. "If we don't hear good news before trading starts, and the DOE doesn't announce a release, the market seems likely to read through to bad news."

In a note earlier Saturday, Book wrote that rather than authorizing a SPR release, the US and other importing countries would likely wait for OPEC members to "make the first move at peril of an SPR release that could undercut scarcity premium the producers might otherwise bank."

"This tactic has practical value, too, because most OPEC producers can move faster than the governments who control strategic stockpiles," Book said.

On Saturday, the US Department of Energy said it "stands ready to deploy resources from the [SPR] necessary to offset any disruptions to oil markets as a result of this act of aggression," according to Shaylyn Hynes, an agency spokeswoman.

Hynes said US Energy Secretary Rick Perry directed DOE officials to work with the IEA "on potential available options for collective global action if needed."

MARINE CAPACITY LIMITS

Book said that the US could technically initiate a SPR release within a day, but Gulf Coast transportation infrastructure would likely limit the scale of such a release.

The US could move as much as 2.12 million b/d of SPR crude to global markets, but as much as 1.74 million b/d of addition marine distribution capacity would likely be needed in the event of an Abquaiq attack, according to a 2016 DOE report.

On Monday, DOE announced it had sold 9.88 million barrels of SPR crude to four US companies, paying an average of $58.99/b and with deliveries set to take place in October and November, the latest in an estimated 290 million barrels of congressionally mandated sales from the SPR through fiscal 2027.

As of Friday, the SPR held 644.8 million barrels of crude in four sites in Texas and Louisiana, including 250.3 million barrels of sweet crude and 394.5 million barrels of sour crude, according to DOE.

During an appearance with DOE's Perry on Friday, Fatih Birol, IEA's executive director, said volumes in the SPR need to be "sufficient enough to give a robust, strong and quick response to any supply disruption."

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Christopher Newkumet, newsdesk@spglobal.com