zero

I agree that the SPR release is necessary. You have to do it just to slow down demand destruction even a little bit. But even if they're considering a coordinated release of 300-400 million barrels like the FT reported, all that volume isn't hitting the market instantly. After the US decided to release 180 million barrels of SPR in 2022, the most they ever released in a single week was 8.4 million barrels in the week ending 2022/9/4. We've got a supply disruption of over 10mb/d in the Middle East, but the historical max release rate is only ~1.2mb/d. The US, which holds the most SPR among Western nations, stores its oil in underground salt caverns, not regular surface tanks. These salt caverns are spread across four major sites along the Gulf Coast of Texas and Louisiana: Bryan Mound, Big Hill, West Hackberry, and Bayou Choctaw. They're artificial caves drilled into giant salt layers a thousand feet underground, and each cave is big enough to fit the Empire State Building. To pull the oil up, they inject freshwater into the bottom of the cave. Since water is heavier than oil, it pushes the oil upward. In theory, the max release capacity of the US SPR is estimated to be around ~4mb/d. In reality, there were several physical constraints that kept the weekly max at 8.4 million barrels. Every time you inject water to push the oil out, the salt walls dissolve a little(Leaching). If you keep releasing at a large scale for a long time like in 2022, it can mess up the cavern's structural stability. If the cave gets too big or the walls get too thin, there's a risk of collapse, so the DOE had to control the release speed to protect the caverns. The oil pushed up from the caves has to travel through pipelines to nearby refineries or port terminals. At the time, the SPR volume overlapped with commercial oil flows, and pipeline capacity hit a saturation point. Also, since the tanker berths and pump capacities for loading oil onto ships are limited, it takes physical time to handle all that volume pouring out at once. Lastly, SPR releases happen through an auction process. No matter how much you want to release, the refiners or traders who buy it need to have the storage space or refining capacity to actually take it. Given the current logistics network of the US oil industry, there’s bound to be a limit on how much the winners can take at their desired timing. In conclusion, everyone could've predicted the SPR release. But what we need is oil that's available right now. With refineries and petrochemical plants already declaring force majeure, if they don't get feedstock immediately, more of them will have to shut down. So they're desperate to get feedstock somehow. You can't offset a loss of over 10mb/d with a supply rate of 1-2mb/d. Without a solution to the fundamental problem (Strait of Hormuz), the upside pressure on the front end of the curve won't go away. It’ll just let out a little steam, but it’ll still be hot. #oott #com