Releasing oil from the SPR?

SPR releases and spot oil, daily, 1991 & 2005 releases, with 6M later
With the average price of gas $3.70 a gallon, up almost 9% from a month ago and an election approaching, what a surprise we’re hearing rumours about an “emergency” release of oil from America’s Strategic Petroleum Reserve (SPR). Curious about the effects of previous releases on the price of oil, I thought I’d look back at previous evens. There have been two previous emergency releases, in 1991 and 2005 (not to be confused with other releases that were used to pay down the nation’s deficit). The chart above shows the daily price of West Texas Intermediate ($WTIC) daily across the periods of both releases. The 1991 release, timed to coincide with The Persian Gulf War, saw the release of 33.75 million barrels of oil into the market. From a high of $30.80 on January 16th, 1991, the price hit a low of $19.60 on March 25th and closed July 1st 1991 at $20.76. So there was an immediate drop of about 36%, but keep in mind this occurred during the early 1990s recession which start on July 1990 and ended in March 1991, so it seems the long term effect is suspect. The second release occurred in September, 2005, to counter the effects of Hurricane Katrina. From a high of $69.50 on September 1st, 2005 oil traded down to a low of $57.30 on December 27th, 2005 or a decline of 17.5%. Still, six months later oil closed at $61.97, which is well within it’s normal fluctuations statistically, so we can conclude long term impact of this event is suspect. So if there is an “emergency” release of oil – as politically untenable as it would be without a significant global event (*cough* Iran & Israel comes to mind) – we’d most definitely see a short term drop, perhaps as much as roughly 20% – but post election we’d probably see oil revert.

In other words, a short term drop in the price of gasoline, just in time for the elections. Interesting times.

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