In late September Energy Secretary Rick Perry said there were no plans to release oil from the nation’s Strategic Petroleum Reserve (SPR) and that price impacts would be negligible. The comments made major headlines that may have given bulls more room to run on prices over the past two weeks.
While his comments were accurately reported, we don’t think the market should assume it is the last word on the topic. Secretary Perry's comments simply reflect DOE's institutional position that the SPR should only be used for supply disruptions and not to impact prices. While we would agree with Perry that, depending on the amount released and basic market fundamentals, the price impact should be minimal, experience shows us that the market seems to view SPR releases generally as bearish for prices.
If pressed, we think DOE would say that their current official position is that no SPR release is planned, and it certainly can change with circumstances. We believe you can make a strong case that declines in Venezuela production already justifies a release.
The White House has the deciding vote on any SPR release but DOE is a major player on the policy discussion and implementation. We think that if prices remain elevated, the chances of an emergency SPR release before the end of October is close to 60 percent and rising. A SPR release is still very much in Trump’s playbook.
Reuters Report on Iran Waivers Consideration is Not New News
It seems every day there is some new report about the Trump Administration reversing course and providing waivers to some countries from US sanctions on Iran oil sales.
The latest report from Reuters on Friday that the US was “actively considering waivers on sanctions” is likely to give oil bulls some pause. Reuters quotes an unnamed administration official that said the administration is “in the midst of an internal process” of considering requests of waivers or exemptions from Iran sanctions.
In our view, this latest report is nothing new as previous administration officials have said on the record the same comments about considering waiver requests on a case-by-case basis. We said at the time and still strongly believe that there is no change in administration policy. We expect zero or close to zero waivers. Anything else would undermine the administration’s objectives on Iran policy.
On Friday, National Security Advisor John Bolton told reporters at a White House briefing that the policy remains “maximum pressure” on Iran and “no waivers from the sanctions.” He was answering a reporter’s question regarding a waiver for Iraq which maintains that it is uniquely dependent on trade with Iran. The full quote is below:
“Our objective, as the second wave of sanctions come back onto Iran, is we want to put maximum pressure on the government in Tehran. It’s our objective that there be no waivers from the sanctions, that exports of Iranian oil and gas drops to zero. I’m not saying we’re necessarily going to achieve that, but nobody should be operating under any illusions, what the objective is. You can look at the possibility of reductions leading to zero. It doesn’t have to happen immediately, perhaps. But ‘this is not the Obama administration,’ would be my message not just to Iraq but to everybody else. And the frequency and the ease of getting waivers and exemptions is not going to be our policy.”
We think Bolton’s comments make clear there is no change in policy on waivers that the Reuters report suggests. Regardless, the oil market is treating this latest report from Reuters as new news.
So what’s going on? First, we suspect that as we get closer to the implementation date of sanctions, more countries are making specific requests for exemptions and reporters are following up with questions to the state department and other administration officials. Each new response to questions will get covered as some update on the policy and create headline risk.
Second, we would not be surprised if the administration has decided that until sanctions become effective on November 4 that it will keep the market guessing about waivers. If you want to try to lower oil prices, one cost-free way ahead of the election would be to create some uncertainty about oil sanctions and the amount of oil that will be removed from the market. We do not believe this was the specific intent of the comment to Reuters about an “internal process” to consider sanctions. However, we think you might hear more on this theme as the media continues to ask about waivers, and also possibly as the administration senses a cause-and-effect in oil markets.
